A Canadian-based tire company will receive $2,500,000 payment from its American-based distributor in two months. The Canadian firm hedges the exchange rate risk using a forward contract and the exchange rate of USDCAD is priced at 1.20. If the US dollar depreciates over the next two months and the expected future spot exchange rate of USDCAD would be 1.08, how much more or less will the Canadian-based tire firm receive in Canadian dollars by hedging, versus an unhedged position?
A Canadian-based tire company will receive $2,500,000 payment from its American-based distributor in two months. The Canadian firm hedges the exchange rate risk using a forward contract and the exchange rate of USDCAD is priced at 1.20. If the US dollar depreciates over the next two months and the expected future spot exchange rate of USDCAD would be 1.08, how much more or less will the Canadian-based tire firm receive in Canadian dollars by hedging, versus an unhedged position? A.300,000 CAD more; B.300,000 CAD less; C.277,778 USD more; D.277,778 USD less