A US importer, who incurs costs in CAD dollars and bills its customers in US Dollars (USD) is concerned about the depreciation of USD against CAD due to CAD payable of 10,000,000 in a month. To hedge (protect himself/herself) the position, importer decides to use futures markets. Currently CAD contracts (100,000 CAD each) are traded at USD0.7023. Spot rate is USD/CAD 1.4080. Suppose the importer takes an equal futures position to its cash market position (CAD10m) at $0.7153. Futures contract price and spot rates are USD0.7052, USD/CAD1.4120 respectively when the hedge is liquidated. 

How much will the importer pay for the CAD 10M payable?

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To calculate how much the importer will pay for the CAD 10 million payable after hedging with future... View the full answer