QUESTION 12 You are a US company which makes shoes. Recently you decided to expand...
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QUESTION 12 You are a US company which makes shoes. Recently you decided to expand the company internationally and you are going to start first in the European Union (EU). You will both produce some products there and also sell some products there. 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. Forward EUR fx rate: 1.15 (all numbers expressed as $USD '000) Revenues US revenues $5,000 EU revenues $50,000 Costs US Corporate costs ($2,000) US salaries ($2,000) EU salaries ($5,000) If you hedge 100% of your exposure with forwards then what is your hedge instrument gain or loss relative to your original forecast if the actual exchange rate in a year is 1.20? $1,957 gain O ($2,250) loss ($1.957) loss DO
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