How many dollars did sherwin have to pay

Assignment Help Finance Basics

Reference no: EM131796559

Question: Rubbermaid must pay a Euro-denominated payable of €100,000 in 120 days. The current spot rate of the euro is $1.2750 and the 120 forward rate quoted today is $1.3550. Sherwin is worried that the euro will appreciate over the next 120 days, increasing the dollar cost of their euro receivable. To hedge this risk, they enter into a forward contract with their bank to "buy euros forward" at the forward rate of $1.3550. Assume that 120 days later, Sherwin executes the contract to buy €100,000 at the contracted forward rate of $1.3550. Assume also that the spot rate at that time is $1.3200.

(a) How many dollars did Sherwin have to pay for the €100,000 by executing the forward contract?

(b) How many dollars would Sherwin have had to pay for the euros if they had not hedged with a forward contract but instead purchased euros in the spot market when the payable was due?

(c) Now assume that the spot rate at the time the payable is due is $1.3255. How much did Sherwin save or lose by purchasing their euros through the forward contract rather than on the spot market?

Reference no: EM131796559

Questions Cloud

Assume the population distribution is normal : The negative weight loss is a weight gain. Test the hypothesis that the mean weight loss was more than 0, using a significance level of 0.05.

Compute the accounts receivable turnover times : Compute the Accounts receivable turnover times, Current cash debt coverage times and Return on common stockholders' equity.

Effect on the other patients : Suppose that each of 300 patients has a probability of 1/3 of being helped by treatment independent of its effect on the other patients.

Think about the special peer relationships : Think about the “special peer”* relationships you have within your organization or have had in a previous organization or work experience.

How many dollars did sherwin have to pay : Rubbermaid must pay a Euro-denominated payable of €100,000 in 120 days. The current spot rate of the euro is $1.2750 and the 120 forward rate quoted today.

Compute the equity method balance in corgan investment : Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2011

Find approximately the chance : Each time you win a dollar with probability 18/38, lose with probability 20/38. Find approximately the chance that after 25 bets you have at least

Voters in the sample oppose the measure : a) Exactly 90 voters in the sample oppose the measure: b) More than half the voters in the sample oppose the measure.

Discuss the insurance proceeds and other funds : the insurance proceeds and other funds were used to purchase a replacement warehouse

User Account

All Pages