US Dairy Corp, 31 Dec 2022 - Current EUR/USD = 1.0 - US 6-month interest...
50.1K
Verified Solution
Link Copied!
Question
Accounting
US Dairy Corp, 31 Dec 2022 - Current EUR/USD = 1.0 - US 6-month interest rate =2.5% - Eurozone 6-month interest rate =1% A. Does the firm have long or short net foreign currency position? Calculate the net foreign asset/liability position in USD terms. B. If the EUR/USD moves to 1.25 during 2023, calculate the FX loss/gain of the firm and prepare the balance sheet using the new exchange rate. C. If the firm uses a 6M forward agreement to hedge its " NET"FX exposure, calculate 1) FX loss/gain on the net foreign asset/liability position and 2) the gain/loss on the forward contract. D. If the firm can borrow the USD equivalent of its AP and debt exposure at an interest rate of 4\% per 6month to purchase the required Euros at the spot price, settle the liability to the supplier + lenders and carry the debt on its books for 6 months, re-calculate the profit/loss. Is this strategy cost effective versus financial hedging using forwards as in question C
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
