Carrington Industries sold equipment to a Mexican firm. 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 your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

First, we need to calculate the expected peso revenue in dollars at the expected spot rate:

41,275,000 pesos x $0.09596/peso = $3,954,191.00

If Carrington sells the pesos at the 30-day forward rate, it will receive:

41,275,000 pesos x $0.09739/peso = $4,017,163.25

The additional dollar revenue from selling forward would be:

$4,017,163.25 - $3,954,191.00 = $62,972.25

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

Carrington Industries Sold Equipment to a Mexican Firm