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Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and
invoiced 11.60 million payable in six months. Currently, the six-month forward exchange rate is
$1.18/ and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to
be $1.13/ in six months. a. What is the expected gain/loss from a forward hedge? b. If you were
the financial manager of Cray Research, would you recommend hedging this euro receivable? Yes
No c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as
the forward exchange rate quoted today. Would you recommend hedging in this case?c. Suppose
the foreign exchange adviser predicts that the future spot rate will be the same as the forward
exchange rate quoted today. Would you recommend hedging in this case? Yes No d. Suppose
now that the future spot exchange rate is forecast to be $1.25/. Would you recommend hedging?
Yes No

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Cray Research sold a supercomputer to the Max Planck Institu.pdf

  • 1. Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced 11.60 million payable in six months. Currently, the six-month forward exchange rate is $1.18/ and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.13/ in six months. a. What is the expected gain/loss from a forward hedge? b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Yes No c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case?c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Yes No d. Suppose now that the future spot exchange rate is forecast to be $1.25/. Would you recommend hedging? Yes No