Du Pont Has Entered into a Currency Risk Sharing Arrangement

question 28

Multiple Choice

Du Pont has entered into a currency risk sharing arrangement with British Gas.Under the contract,Du Pont agrees to pay British Gas a base price of $10 million for gas purchases,but the parties would share the currency risk equally beyond a neutral zone,specified as a band of exchange rates: $1.67?1.73:£1.Within the neutral zone,Du Pont must pay BG the pound equivalent of $10 million at the base rate of $1.70.Suppose the spot rate at the time of payment is £1 = $1.63.How much will Du Pont owe British Gas?

• A)$10 million
• B)$9,702,381
• C)$9,588,235
• D)$9,819,277

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