Your Firm Will Be Importing a Large Order of Its

question 15

Multiple Choice

Your firm will be importing a large order of its inputs from the United States in three months and is concerned that the Canadian dollar might fall against the U.S.dollar over that time.To hedge your risk,you decide to enter into a currency forward contract to purchase 750,000 USD at a rate of 1.0114 CAD/USD.If the spot exchange rate in 3 months' time ends up being 1.0346 CAD/USD,what is your gain or loss from hedging compared to remaining unhedged?

• A)$0
• B)$17,400
• C)$16,629
• D)-$17,400
• E)-$16,629

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Definitions:

Promissory Note

A financial tool comprising a formal pledge by one entity to compensate another entity with a certain amount of money, which can be requested at any time or on a predefined future date.

Negotiate

To discuss something in an attempt to reach agreement, especially in business or political contexts.

Properly Drawn

A term indicating that a document, especially a legal document, has been prepared correctly and in accordance with all necessary formalities.

Endorsee

A person or entity to whom a negotiable instrument, such as a cheque or promissory note, is legally transferred through endorsement.