Murray Auto has agreed to buy cars for €1,000,000 from Germany. The total invoice is to...
Murray Auto has agreed to buy cars for €1,000,000 from Germany. The total invoice is to be paid in 6 months when the cars are delivered. CrownJet of Ohio has agreed to sell a jet for €1,000,000 to a buyer in France. CrownJet will receive the payment in 6 months when the plane is delivered. Both companies are worried about the dollar/euro exchange rate. Murray and CrownJet enter into the forward contract expiring 6 months from now. The $/€ spot exchange rate is 1.13. The forward rate is $1.11/€. Murray Auto goes long. CrownJet goes short. The contract is cash settled. It is the expiry date. The spot exchange rate is $/€ 1.17. On the expiry date:
Group of answer choices:
CrownJet pays Murray €40,000
Murray pays CrownJet €20,000
CrownJet pays Murray $60,000
Murray pays CrownJet $20,000
Murray pays CrownJet $60,000
Homework Answers
Murray Auto is Long Euro forward
Crown Jet is Short Euro Forward
Murray Auto gets (1.17-1.11)*1000000=60000.00
CrownJet pays Murray $60,000
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