A Brazilian firm owes you $2,000,000,payable in three months,however,they insist on paying in Brazilian Reals.The current spot exchange rate is 0.59305 CAD/BRL.The three-month forward exchange rate is 0.61255 CAD/BRL.How many Real should you demand in a forward contract to receive $2,000,000 in three months to hedge the exchange rate risk?

Question

Quizplus · Accepted Answer

To calculate the amount of Real to demand in a forward contract, we need to use the formula:

Amount of Real = (CAD Amount / Forward Exchange Rate)

CAD Amount = $2,000,000
Forward Exchange Rate = 0.61255 CAD/BRL

Therefore,

Amount of Real = ($2,000,000 / 0.61255) = 3,265,040 Real

Thus, the best choice is C.

A Brazilian Firm Owes You $2,000,000,payable in Three Months,however,they Insist