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:

Economic Profits

The financial gain obtained after subtracting both explicit and implicit costs from total revenues.

Perfectly Competitive Industry

An industry in which no single producer can influence the market price of the product because the conditions of perfect competition are met.

Economic Resources

Assets or inputs that contribute to the production of economic goods, including land, labor, capital, and entrepreneurship.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenue, capturing the true economic value created.