Suppose Snooty Wine Importers has an order of Chateau de Snoot wines arriving from France in October,and the order will be paid in euros.If Snooty enters a contract today with a forward rate of 0.9 euros per U.S.dollar for October delivery,and the spot rate in October turns out to be euro 0.85 per U.S.dollar,what is the effect of the forward contract on Snooty?

Question

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Snooty Importers lost $37,500. The forward rate of 0.9 euros per U.S. dollar means that Snooty agreed to pay 0.9 euros for each U.S. dollar it will use to pay for the order in October. However, the spot rate in October turned out to be 0.85 euros per U.S. dollar, meaning that if Snooty had not entered into the forward contract, it would have paid less euros to cover the cost of its order. Therefore, the forward contract resulted in a loss of $37,500 for Snooty.

Suppose Snooty Wine Importers Has an Order of Chateau De