Problem:
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.
Required:
Question: Based on this information, the expected value of the real cost of hedging payables is $____.
- 35,000
- 25,000
- -1,000
- 1,000
Note: Explain all steps comprehensively.