If the us firm wants to minimize the expected dollar cost

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Reference no: EM131316743

Suppose that the spot exchange rate follows a random walk, which means that the best forecast of the spot rate at some future date is simply its current value. Now suppose that a U.S. firm owes €1 million to a Spanish supplier.

If the U.S. firm wants to minimize the expected dollar cost of paying its Spanish supplier (without regard to currency risk), describe the circumstances under which the firm will or will not enter into a forward contract to hedge its exposure.

Reference no: EM131316743

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