Exchange Gain or Loss and Hedg

Exchange Gain or Loss and Hedging. Using the same data in Problem 19.4:

(a) Calculate Kidd’s exchange gain or loss if Kidd receives payment from the British customer using the spot rate at the time of payment.

(b) Calculate the amount Kidd expects to receive on November 1 in dollars, if Kidd’s policy is to hedge foreign currency transactions.

Problem 19.4:

Spot Rates. On August 1, Kidd Trading received an order from a British customer for £1,000,000 to be paid on receipt of the goods, scheduled for November 1. The rates for $1 US are as follows:

Exchange Rates for $1 British £

Spot rate, June 1                              1.617

Forward rate, August 1                  1.615

Spot rate, August 1                         1.616

(a) How much does Kidd expect to receive from the British customer in dollars using the spot rate at the time of the order?

(b) How much does Kidd expect to receive from the British customer in dollars using the spot rate at the time of payment?

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