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Question
A U.S. importer buys merchandise from a German manufacturer worth 100,000 when the exchange rate is 0.6451 per dollar with payment due in 30 days. The importer decides to enter into a forward contract to deliver dollars for euros for 0.6329. At the time the payment is due, the spot rate is 0.6711. Based on this, which of the following is true?
A) The importer would have paid more for the merchandise at the future spot rate than at the forward rate.
B) The importer will have to pay $67,110 for the merchandise.
C) There is no foreign exchange risk to the importer since the sale is denominated in euros.
D) The exporter will receive 100,000 for the sale.
Answer
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