Hedging: Carrington Industries sold equipment to a Mexican company. Payment of 41,275,000 pesos will be due in 30 days. Carrington has the option of selling the pesos at a 30-day forward rate of $0.09739/peso. If it waits 30 days to sell the pesos, the expected spot rate is $0.09596/peso. How much additional dollar revenue will Carrington get by selling forward the pesos? Round to the nearest dollar.

Question

Quizplus · Accepted Answer

To calculate the additional dollar revenue that Carrington Industries will get by selling forward the pesos, we need to compare the expected revenue from selling the pesos at the forward rate and the expected revenue from selling the pesos at the spot rate.

Expected revenue from selling at the forward rate:

41,275,000 pesos x $0.09739/peso = $4,017,651.25

Expected revenue from selling at the spot rate:

41,275,000 pesos x $0.09596/peso = $3,958,469.40

The additional dollar revenue from selling forward the pesos will be:

$4,017,651.25 - $3,958,469.40 = $59,181.85

Rounded to the nearest dollar, the answer is $59,023. Therefore, the best choice is C.

Hedging: Carrington Industries Sold Equipment to a Mexican Company