A French firm is buying $1,000,000 of optical cable from a firm in the United States.The French firm will pay for the cable in thirty days.To protect itself from changes in the exchange rate between the Euro and dollar,the French firm enters into a futures contract to purchase $1,000,000 at a price of $1.25/€.How many Euros will it cost the French firm to purchase $1,000,000 using the futures contract?
A) €125,000,000
B) €2,500,000
C) €1,250,000
D) €1,000,000
E) €800,000

Question

Quizplus · Accepted Answer

To calculate the cost in Euros for the French firm to purchase $1,000,000 using the futures contract at a price of $1.25/€, you divide the total dollar amount by the exchange rate: $1,000,000 / $1.25/€ = €800,000.

A French Firm Is Buying $1,000,000 of Optical Cable from a Firm