A U.S. company has a forward purchase contract for delivery of euros at the end of May at a price of $1.24/€. The U.S. dollar strengthens against the euro during this period. The company will:

Question

Quizplus · Accepted Answer

If the U.S. dollar strengthens against the euro, it means that fewer dollars are needed to buy the same amount of euros. Therefore, a contract to buy euros at a previously agreed higher rate ($1.24/€) would result in a loss compared to the current market rate.

A US Company Has a Forward Purchase Contract for Delivery of of Euros