23 Jul EXPLAIN HOW THE HOUSTON BANK COULD LOSE ON THIS TRANSACTION ASSUMING NO HEDGING.
You are the vice president of finance for Exploratory Resources headquartered in Huston Texas. In Show more You are the vice president of finance for Exploratory Resources headquartered in Huston Texas. In January 2010 your firms Canadian subsidiary obtained a six-month loan of 150000 Canadian dollars from a bank in Houston to finance the acquisition of a titanium mine in Quebec province. The loan will also be repaid in Canadian dollars. At the time of the loan the spot exchange rate was U.S. $0.8995/Canadian dollar and the Canadian currency was selling at a discount in the forward market. The June 2010 contract (face value = C$150000 per contract) was quoted at U.S. $0.8930/Canadian dollar. a. Explain how the Houston bank could lose on this transaction assuming no hedging. b. If the bank does hedge with the forward contract what is the maxium amount it can loose? Show less
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