A multinational financial institution in Chicago wishes to transfer 50,000,000 from a bank in Berlin, Germany. The
Question:
A multinational financial institution in Chicago wishes to transfer 50,000,000 from a bank in Berlin, Germany. The transfer will take place in February although the transaction will be hedged with March euro futures contract - which matures one month after the month of the funds transfer. Current spot exchange rate for the euro is $1.30. Euro futures price for March delivery is $1.28. The size for one euro futures contract is 125,000.
1) Notice that the Chicago firm will offset the futures position in February. Calculate the profit on the futures transaction, taking into account the total number of contracts involved.
2) Calculate the HEDGE profit on the spot and futures transactions.
Modern Advanced Accounting In Canada
ISBN: 9781259066481
7th Edition
Authors: Hilton Murray, Herauf Darrell