What is the cost of hedging a 2 million euro commitment if the spot rate is USD1.60 = EUR1,the forward rate is USD1.55 = EUR1,and the spot rate is not expected to change before payment becomes due?
A) $0
B) $25,000
C) $40,323
D) $36,667

Question

Quizplus · Accepted Answer

Cost of hedge = cost of buying at the forward price − cost of buying at the expected spot price = 2,000,000 / 1.55 − 2,000,000/ 1.60 = $40,323

What Is the Cost of Hedging a 2 Million Euro