A Turkish importer buys 100 dollar May futures contract on April 30 to hedge himself/herself for...
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A Turkish importer buys 100 dollar May futures contract on April 30 to hedge himself/herself for a payment of $ 100 000 on May 31. The seller of these contracts is a short hedger (an exporter). Both the importer and short hedger intend to keep their positions until the end of maturity. The spot dollar rate is 6.99 on April 30 while the May dollar futures trade at 6.92 on the same date. Given this a) Who ends with an incomplete hedge and who ends with a profitable hedge in this case? b) Can you find the amount of imperfect hedge (numerically) of the side which will have an imperfect hedge and the additional profit (over perfect hedge) of the side who will have a profitable hedge in this question? A Turkish importer buys 100 dollar May futures contract on April 30 to hedge himself/herself for a payment of $ 100 000 on May 31. The seller of these contracts is a short hedger (an exporter). Both the importer and short hedger intend to keep their positions until the end of maturity. The spot dollar rate is 6.99 on April 30 while the May dollar futures trade at 6.92 on the same date. Given this a) Who ends with an incomplete hedge and who ends with a profitable hedge in this case? b) Can you find the amount of imperfect hedge (numerically) of the side which will have an imperfect hedge and the additional profit (over perfect hedge) of the side who will have a profitable hedge in this question?
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Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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