Sonnenschein A.G.You Check with Your Banker and Find Out the Following

question 20

Short Answer

Sonnenschein
A.G.You check with your banker and find out the following: The spot bid and ask rates are USD 1.1001/EUR and USD 1.0953/EUR respectively and the 120-day forward rates are EUR 0.8850/USD and EUR 0.8950/USD.Determine the net payables if Sonnenschein uses a forward hedge to manage its payables.
US$ 100,000*0.8950 = EUR 89,500
A.G., a German retailer of solar panels just bought panels for US $ 100,000 to be paid in 120 days.As the financial manager, you are responsible for making a recommendation on the best hedging choice available to Sonnenschein

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Definitions:

Buyers

Individuals or entities that purchase goods or services for personal use or for the purpose of reselling.

Sellers

Individuals or entities that offer products or services for sale to buyers in a marketplace.

Tax

A compulsory financial charge or other levy imposed by a government on individuals or businesses to fund various public expenditures.

Binding Price Floor

A legal minimum price for a good or service that is set above the equilibrium price, resulting in surpluses.