Unformatted text preview: Is the forward rate correctly quoted by the bank? If not, what should the forward rate be? 3. As a U.S. based importer of shoes from Italy, you will be making a payment in Euro on a shipment of shoes in the next 60 days. You expect that the value of the Euro to increase against the U.S. dollar over the next 60 days and you would like to hedge your currency exposure. The current spot rate is 1.30 US Dollar (USD) per Euro (EUR), the US risk-free rate is 3% while the Euro risk-free rate is 4%. A. How can you use a forward contract to hedge your risk? Briefly explain your answer. B. Calculate the theoretical fair price of the forward contract you should enter into for settlement in 60 days....
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- Spring '10
- Economics, United States dollar