Question: Pinochio Corporation will import new wooden toys from a French
Pinochio Corporation will import new wooden toys from a French manufacturer this week at a price of 200 Euros per item for eventual distribution to retail stores. The current Euro-dollar exchange rate is 0.6423 Euros per U.S. dollar. Payment for the shipment will be made by Pinochio next month, but Euros are expected to appreciate significantly against the dollar. Pinochio asks its bank, Southern Merchants Bank, N.A., for advice on what to do. What kind of futures transaction could be used to deal with this problem faced by Pinochio? Futures contracts calling for delivery of Euros next month are priced currently at 0.6418 Euros per dollar and are expected to be priced next month at 0.6012 Euros per dollar.
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