Kapona Industries has purchased equipment from a Korean firm for a total cost of 11,500,000 Korean won. The firm has to pay in 90 days. J. P. Morgan has given the firm a 90-day forward quote of $0.0009791/won. Assume that on the day the payment is due, the spot rate is at $0.001004/ won. How much would Kapona save by hedging with a forward contract? (Round your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

By hedging with the forward contract at $0.0009791/won, Kapona would pay 11,500,000 * $0.0009791 = $11,259.65. Without hedging, at the spot rate of $0.001004/won, they would pay 11,500,000 * $0.001004 = $11,546.00. The savings from hedging would be $11,546.00 - $11,259.65 = $286.35, rounded to the nearest dollar is $286.

Kapona Industries Has Purchased Equipment from a Korean Firm for a Total