You are buying a boat from a company that builds custom boats. You would like a boat with listed price of $90,000 and would like delivery on May 15, 2024 (about five months away). As the company you are buying from operates from an offshore island location, they require that all payments be in Bitcoin. You negotiate a deal with the company to buy the boat for .5 Bitcoin today as a down payment and a payment of 2.5 Bitcoin in May 2024 when the boat is delivered.

(a) Explain the currency risk you are taking with this contract

(b) Describe (in general) hedging the risk above using a forward contract.

(c) Describe two differences from part (b) if you hedge the above using futures contracts at the CME group.

(d) Draw a diagram showing the hedge in part (b) using a forward contract. Your diagram should show the range of payoffs from the unhedged position, the hedge instrument and the net position

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answer a Currency Risk Explanation In this contract the currency risk arises due to the fact that yo... View the full answer