Exchange rates and hedging
On October 1 2018,Glenn Company accepted a shipment of beer from Germany.The purchase contract specifies payment of 3,000,000 euros is to be made on December 1,2018.The exchange rate on October 1,2018 was: $1 = 1.4 euros.
Instructions:
(a)If the exchange rate on December 1 2018 is: $1 = 1.18 euros,what amount of gain or loss due to the exchange rate fluctuation will be recognized on the purchase?
(b)On October 1,Glenn's analysts were forecasting the exchange rate to be: $1 = 1.20 euros on December 1,2018.Glenn can enter into a hedging contract on October 1,2018 whereby the bank would accept $2,480,000 in exchange for 3,000,000 euros on December 1.The bank will charge a $2,000 fee to enter into the agreement.Should Glenn enter into the hedge agreement?
(c)If Glenn enters into the hedging contract,what will be the exchange gain/loss recorded on December 1,2018? (Do not round your intermediate computations,but rather round the final answers to nearest whole dollar. )

Question

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The Answer of Exchange rates and hedging
On October 1 2018,Glenn Company accepted a shipment of beer from Germany.The purchase contract specifies payment of 3,000,000 euros is to be made on December 1,2018.The exchange rate on October 1,2018 was: $1 = 1.4 euros.
Instructions:
(a)If the exchange rate on December 1 2018 is: $1 = 1.18 euros,what amount of gain or loss due to the exchange rate fluctuation will be recognized on the purchase?
(b)On October 1,Glenn's analysts were forecasting the exchange rate to be: $1 = 1.20 euros on December 1,2018.Glenn can enter into a hedging contract on October 1,2018 whereby the bank would accept $2,480,000 in exchange for 3,000,000 euros on December 1.The bank will charge a $2,000 fee to enter into the agreement.Should Glenn enter into the hedge agreement?
(c)If Glenn enters into the hedging contract,what will be the exchange gain/loss recorded on December 1,2018? (Do not round your intermediate computations,but rather round the final answers to nearest whole dollar. )

Exchange Rates and Hedging