Cosgrove Manufacturing Company just sold products to a German company for €1,275,000 on terms of net 30 days. Cosgrove is worried that the dollar might strengthen against the euro in the 30 days the credit is outstanding, so it has decided to hedge the receivable with a money market hedge. Current euro interest rates are 4.42 percent per annum or 0.3684 percent per month and U.S. interest rates are 5.40 percent per annum or 0.45 percent per month. The current spot rate is $1.2300/€ and the forward rate is $1.2310/€. How much does Cosgrove have to borrow today in euros to hedge this transaction, and will the transaction lead to a transaction gain or loss?

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The Answer of Cosgrove Manufacturing Company just sold products to a German company for €1,275,000 on terms of net 30 days. Cosgrove is worried that the dollar might strengthen against the euro in the 30 days the credit is outstanding, so it has decided to hedge the receivable with a money market hedge. Current euro interest rates are 4.42 percent per annum or 0.3684 percent per month and U.S. interest rates are 5.40 percent per annum or 0.45 percent per month. The current spot rate is $1.2300/€ and the forward rate is $1.2310/€. How much does Cosgrove have to borrow today in euros to hedge this transaction, and will the transaction lead to a transaction gain or loss?

Cosgrove Manufacturing Company Just Sold Products to a German Company