1. **Problem Statement:** Elan Pharmaceuticals is evaluating an export sale of 1,630 million Indonesian rupiah (Rp). The current spot rate is Rp9450/$, so the sale translates to $172,486.77. The company requires a minimum gross margin of $165,000. The 90-day forward rate is Rp9920/$, and the expected spot rates in 90 days vary. We need to analyze how much Elan will receive in USD under different scenarios and recommend a hedging strategy. 2. **Formula and Explanation:** To convert rupiah to USD, use the formula: $$\text{USD amount} = \frac{\text{Rp amount}}{\text{exchange rate (Rp/USD)}}$$ - Without a hedge, the amount received depends on the spot rate in 90 days. - With a forward hedge, the amount is fixed at the forward rate. 3. **Calculations:** **Part 1:** Expected spot rate in 90 days = Rp9450/$ $$\text{USD} = \frac{1,630,000,000}{9,450} = 172,486.77$$ **Part 2:** Expected spot rate in 90 days = Rp10,230/$ $$\text{USD} = \frac{1,630,000,000}{10,230} = 159,335.29$$ **Part 3:** Expected spot rate in 90 days = Rp9920/$ $$\text{USD} = \frac{1,630,000,000}{9,920} = 164,314.52$$ **Part 4:** With a forward market hedge at Rp9920/$, the amount is fixed: $$\text{USD} = \frac{1,630,000,000}{9,920} = 164,314.52$$ 4. **Interpretation:** - Without a hedge, if the rupiah strengthens (higher Rp/USD), Elan receives less USD. - The minimum required is $165,000, but the forward hedge guarantees $164,314.52, slightly below the minimum. - The expected spot rate of Rp9450/$ yields $172,486.77, which is above the minimum. 5. **Recommendation:** - If Elan expects the rupiah to weaken or stay around Rp9450/$, not hedging could yield more than the minimum. - If the rupiah strengthens as forecasted (Rp10,230/$), Elan would receive less than the minimum without a hedge. - The forward hedge locks in a known amount close to the minimum, reducing risk. **Final answers:** - Part 1: $172,486.77 - Part 2: $159,335.29 - Part 3: $164,314.52 - Part 4: $164,314.52