A US firm sold goods to a British firm at an agreed price of 2,812,500 GBP which

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A US firm sold goods to a British firm at an agreed price of 2,812,500 GBP which it will receive in December. The choose to manage this exposure using CME futures contracts:

-Contract: GBP / USD Futures

Expiry: December

Price: 1.6491

size: 62,500 GBP

maintenance margin: 1500USD

initial margin: 110% of maintenance margin

settlement: physical delivery

current spot value of the pound is 1.6524

a) how many futures contracts will they use to hedge their exposure and will they buy or sell said futures ?

b) what is the total size of the margin that would be required at the beginning to hedge this exposure ?

Related Book For answer-question

Financial Reporting and Analysis

ISBN: 978-0078025679

6th edition

Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon

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Posted Date: Feb 11, 2024 01:24 AM

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A US firm sold goods to a British firm at an agreed price of 2,812,500 GBP which

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Hedging the Exposure with CME Futures Contracts a Number and Direction of Contracts Calculat... View the full answer

Financial Reporting and Analysis

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