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Academic MBA Question:

Case Study Assignment Question: A US company has exported goods worth Eur 100 million, receivable after 3 months, to a Germany based company. The forward rates are expressed as:

EUR-USD Spot 1.0973 – 1.0974

Three months Forward 75.5 – 76.0

a. Is the EUR quoting at discount or premium to the USD? What is the forward rate applicable at which the US Company will enter into a forward contract?

b. Suppose USD is depreciating. Should the US exporter go for hedging the risk? If he hedges the risk with a forward contract and the actual spot rate after 3 months turns out to be the same as the currency spot rate, what is his notional profit/ loss?


Academic Assignment Answer:

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