Question: Futures and forward currency contracts are not readily available for all currencies. However, many currencies are closely linked. For example, many European countries, which are

Futures and forward currency contracts are not readily available for all currencies. However, many currencies are closely linked. For example, many European countries, which are not part of the euro, attempt to maintain a close link with the euro.
An American investor has a portfolio of Danish stocks that she wishes to hedge against currency risks. No futures contracts are traded on the Danish kroner, so she decides to use euro futures contracts traded in Chicago, because both countries belong to the European Union. Here are some quotes
Value of the portfolio.....................................DKK 100 million
Spot exchange rates.......................................DKK6.6/$
$1.10/€
Futures price (contract of €12">,000)...................$l.ll/€
How many euro contracts should the U.S. investor trade?

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