Cosgrove Manufacturing Company just sold products to a German company for €1,275,000. The account receivable was booked as $1,568,250 at the current spot rate of $1.2300/€. Cosgrove is worried that the dollar might strengthen against the euro in the 30 days until the account will be collected, so it decides to hedge the transaction at the 30-day forward rate of $1.2310/€. By hedging, Cosgrove will lock in a ______ of _______?

Question

Quizplus · Accepted Answer

By hedging at the forward rate of $1.2310/€, Cosgrove locks in a gain of $1,275 because the forward rate is slightly higher than the spot rate, resulting in a higher dollar amount when converted.

Cosgrove Manufacturing Company Just Sold Products to a German Company