Stover Corporation, a U

question 30

Multiple Choice

Stover Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or
$24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.638 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure?

• A) -$396
• B) -$243
• C) $0
• D) $243
• E) $638

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Definitions:

Industry

A sector of the economy that produces and provides related services within a specific area of production or commerce.

Base Period

The Base Period in financial analysis is a specific time period used as a standard of comparison for assessing financial or economic data over different periods.

Analysis Period

A specified timeframe during which financial data is analyzed and assessed for business reporting or investment decisions.

Percentage

A fraction or ratio expressed as part of one hundred, used to compare quantities or to indicate a portion of a whole.