Celine Co Will Need €500,000 in 90 Days to Pay for for German

Celine Co. will need €500,000 in 90 days to pay for German imports. Today's 90-day forward rate of the euro is $1.07. There is a 40 percent chance that the spot rate of the euro in 90 days will be $1.02, and a 60 percent chance that the spot rate of the euro in 90 days will be $1.09. Based on this information, the expected value of the real cost of hedging payables is $____.

A) -35,000
B) 25,000
C) -1,000
D) 1,000

Correct Answer:

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