Disadvantages of hedging transaction with forward contract

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Reference no: EM131059117

You are concerned about your transaction exposure on a recent purchase from an importer in Germany. The invoice, just sent, is 95,000 euros payable in 60 days, which will be about mid-September. The current exchange rate is $1.10 per euro, and you fear that the dollar will depreciate against the euro due to the relatively low interest rates currently prevailing in the United States. The following forward rate is $1.12.

What are the advantages and disadvantages of hedging the transaction with a forward contract?

Reference no: EM131059117

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