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 Eu...

The risk of a rising euro can be hedged by a long hedge in currency future ...

Pinochio Corporation will import new wooden toys from a French manufacturer this week at a price of

Question:

Pinochio will import new wooden toys from a French manufacturer this week at a price of 200 Euros per item for eventual to retail stores. The current Euro-dollar 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.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...