What is a strategy that will hedge this Sri Lankan firm's exchange rate risk? A. Go short in 36 rupee forward contracts. B. Go long in 36 rupee forward contracts. C. Go short in 30 rupee forward contracts. D. Go long in 30 rupee forward contracts. E. None of the options

What is a strategy that will hedge this Sri Lankan firm's exchange rate risk? A. Go short in 36 rupee forward contracts. B. Go long in 36 rupee forward contracts. C. Go short in 30 rupee forward contracts. D. Go long in 30 rupee forward contracts. E. None of the options

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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A Sri Lankan MNC that is an importer has a $3,750,000 payable due in one year.
Spot exchange rates
1-year Forward Rates
$ 1.00
Rs. 100
Contract size
$ 1.00 = Rs. 120 Rs. 12,500,000
What is a strategy that will hedge this Sri Lankan firm's exchange rate risk?
A. Go short in 36 rupee forward contracts.
B. Go long in 36 rupee forward contracts.
C. Go short in 30 rupee forward contracts.
D. Go long in 30 rupee forward contracts.
E. None of the options

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