QUESTION 11 You are a US company which makes surgical masks. Recently you decided to...
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QUESTION 11 You are a US company which makes surgical masks. Recently you decided to expand the company internationally and you are going to start first in the European Union (EU). You will have employees based in Europe and in the US. Your forecast for next year is below. In the forecast, any item marked as an EU item is actually the US dollar equivalent of Euro which has been translated at the EUR forward rate. Spot EUR FX rate: 1.20 Forward EUR FX rate: 1.22 (all numbers expressed as $USD '000) Revenues US revenues $5,000 EU revenues $3,000 Costs US salaries ($2,000) EU salaries ($1,000) You decide that you are not going to hedge your exposure. Since you have not hedged your exposure, what is your FX exposure gain or loss from your forecast if the exchange rate next year is actually 1.022 ($400) loss $125 gain $850 gain ($328) loss
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