A US-based exporter anticipated receiving €100 million in six months, and took a short forward position, locking-in an exchange rate of $1.38/€. If after six months, at maturity, the exporter calculates that she has made a profit of $2 million from the hedging strategy, the spot exchange rate at maturity must be
A) $ 0.50/€.
B) $ 1.36/€
C) $1.40/€
D) $ 2.00/€

Question

Quizplus · Accepted Answer

To calculate the spot exchange rate at maturity, we need to first find the amount of euros that the exporter received after the six months.

€100 million at the forward rate of $1.38/€ translates to $138 million.

Since the exporter made a profit of $2 million from the hedging strategy, she received a total of $140 million after six months.

To find the spot exchange rate, we divide the total amount received in dollars by the original amount expected in euros:

$140 million / €100 million = $1.40/€

Therefore, the spot exchange rate at maturity must be $1.40/€.

The closest option is B) $1.36/€.

A US-Based Exporter Anticipated Receiving €100 Million in Six Months