Hudson Valley Distributors Wants to Be Sure It Has 10,000

Hudson Valley Distributors wants to be sure it has 10,000 cases of Beaujolais Nouveau to sell next November. In January, they enter into an agreement to buy the wine at a price of 34.62 euro to the case. Payment will be due at the end of November. They expect to sell the wine to restaurants and retailers for $63 per case. Hudson Valley has hedged its foreign exchange risk by entering into a forward contract to purchase euros in November at $1.30/euro. If the spot exchange rate at the end of November is $1.25/euro, the payoff to Hudson Valley for hedging is

A) $13,315.
B) $17,310.
C) ($17,310) .
D) ($500) .

Correct Answer:

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