A multinational financial institution in Chicago wishes to transfer 50,000,000 from a bank in Berlin, Germany. The transfer will take place in February although the transaction will be hedged with March euro futures contract - which matures one month after the month of the funds transfer. Current spot exchange rate for the euro is $1.30. Euro futures price for March delivery is $1.28. The size for one euro futures contract is 125,000.

1) Notice that the Chicago firm will offset the futures position in February. Calculate the profit on the futures transaction, taking into account the total number of contracts involved.

2) Calculate the HEDGE profit on the spot and futures transactions.

Answer rating: 100% (QA)

To calculate the profit on the futures transaction and the hedge profit on the spot and futures transactions we need to consider the change in the eur... View the full answer