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CFA Level 2
Derivatives

Forward Pricing of Currency Forwards

Very Hard Forward Pricing And Valuation Currency Forwards

ABC Corp is a US-based multinational company that operates in both the United States and Europe. It anticipates receiving €10 million in six months from its European subsidiary. The current EUR/USD spot exchange rate is 1.20, and the 6-month forward rate is 1.22. ABC Corp wants to hedge its exposure to fluctuations in the exchange rate. As a financial analyst, you are tasked with determining the forward pricing implications for ABC Corp.

Based on the above information, what is the effective USD amount that ABC Corp will receive when they convert the €10 million at the 6-month forward rate?

Hint

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