A German corporation finalized a sale to a Thai client on April 15. The German corporation will deliver some gardening equipment on May 31 and will be paid 345 million baht on June 30. The current spot exchange rate is 40 baht/euro. The German corporation is worried about a depreciation of the baht in the coming two months and wishes to sell those baht forward against euros. Why should the German corporation use forward rather than futures currency contracts?

I. Futures contracts are standardized in terms of size and maturity. It is unlikely that futures contracts will exist for this exact maturity (June 30) and size (345 million). This can easily be arranged in a forward contract.

II. Futures contracts are subject to marking-to-market. This could be very cumbersome for the German corporation.

III. The corporation would have to engage in two separate transactions: sell baht futures (against the dollar) and buy euro futures (against the dollar), with separate marking-to-market and margins.

IV. Active futures contracts only exist for a small number of currencies. The Thai baht is not one of them.

A)I and IV only

B) II and III only

C) I, II, and IV only

D) I, II, III, and IV

Answer rating: 100% (QA)

B II and III only The German company can enter into either standardize futures contract or ... View the full answer