Max Ltd is due to receive $810,000 from a US company in 30 days time. It is
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Question:
Max Ltd is due to receive $810,000 from a US company in 30 days time. It is now September 30th. Max wishes to hedge exchange rate risk using currency futures.
Current spot rate is $1.5028/£
(CME £62,500), Futures contracts are currently available with the following rates:
December $1.5087
March $1.5098
June $1.5123
Assume the futures contracts mature at the end of the relevant month.
- Evaluate the hedge if in 30 days, the spot rate (October 30th) is $1.6703 and the Future price (October 30th) for December contract is $1.6744
- Explain why currency future contracts have not provided a perfect hedge.
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