Lorre Co Needs 200,000 Canadian Dollars (C$) in 90 Days and and Is

Lorre Co. needs 200,000 Canadian dollars (C$) in 90 days and is trying to determine whether or not to hedge this position. Lorre has developed the following probability distribution for the Canadian dollar:


The 90-day forward rate of the Canadian dollar is $.575, and the expected spot rate of the Canadian dollar in 90 days is $.55. If Lorre implements a forward hedge, what is the probability that hedging will be more costly to the firm than not hedging?

A) 40 percent
B) 60 percent
C) 15 percent
D) 85 percent

Correct Answer:

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