Assume that Kramer Co. will receive SF800,000 in 90 days. Today's spot rate of the Swiss franc is $.62, and the 90-day forward rate is $.635. Kramer has developed the following probability distribution for the spot rate in 90 days:
$$\begin{array}{l}
\text { Passible spot Fate }\
\begin{array} { c c }
\text { in 90 D.4 } & \text { Probabilit } \
.61 & 10 \% \
\$ .63 & 20 \% \
\$ .64 & 40 \% \
\$ .65 & 30 \%
\end{array}
\end{array}$$
The probability that the forward hedge will result in more dollars received than not hedging is:
A) 10%.
B) 20%.
C) 30%.
D) 50%.
E) 70%.

Question

Assume that Kramer Co. will receive SF800,000 in 90 days. Today's spot rate of the Swiss franc is $.62, and the 90-day forward rate is $.635. Kramer has developed the following probability distribution for the spot rate in 90 days:
$$\begin{array}{l}
\text { Passible spot Fate }\
\begin{array} { c c } 
\text { in 90 D.4 } & \text { Probabilit } \
 .61 & 10 \% \
\$ .63 & 20 \% \
\$ .64 & 40 \% \
\$ .65 & 30 \%
\end{array}
\end{array}$$
The probability that the forward hedge will result in more dollars received than not hedging is:
A) 10%.
B) 20%.
C) 30%.
D) 50%.
E) 70%.

Quizplus · Accepted Answer

The Answer of Assume that Kramer Co. will receive SF800,000 in 90 days. Today's spot rate of the Swiss franc is $.62, and the 90-day forward rate is $.635. Kramer has developed the following probability distribution for the spot rate in 90 days:
$$\begin{array}{l}
\text { Passible spot Fate }\
\begin{array} { c c } 
\text { in 90 D.4 } & \text { Probabilit } \
 .61 & 10 \% \
\$ .63 & 20 \% \
\$ .64 & 40 \% \
\$ .65 & 30 \%
\end{array}
\end{array}$$
The probability that the forward hedge will result in more dollars received than not hedging is:
A) 10%.
B) 20%.
C) 30%.
D) 50%.
E) 70%.

Assume That Kramer Co The Probability That the Forward Hedge Will Result in More