A UK Company purchased goods for Euro 870,000 in December, which must pay for in May....
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A UK Company purchased goods for Euro 870,000 in December, which must pay for in May. It wishes to hedge its exposure with currency futures. The spot rate when the goods were purchased was Euro1 = £0.7159 -0.7161. The price of Euro June futures at the same time is £0.7180. Euro futures are for Euro100,000. REQUIRED: (i) How might the company use currency futures to establish a hedge for the currency exposure? (ii) Having established the hedge, suppose the spot rate when the goods are paid for is Euro 1 = £0.7215-0.7220, and the price of June Futures is £0.7213. How would the position be unwound and what would be the effective exchange rate for the payment of the Euros. A UK Company purchased goods for Euro 870,000 in December, which must pay for in May. It wishes to hedge its exposure with currency futures. The spot rate when the goods were purchased was Euro1 = £0.7159 -0.7161. The price of Euro June futures at the same time is £0.7180. Euro futures are for Euro100,000. REQUIRED: (i) How might the company use currency futures to establish a hedge for the currency exposure? (ii) Having established the hedge, suppose the spot rate when the goods are paid for is Euro 1 = £0.7215-0.7220, and the price of June Futures is £0.7213. How would the position be unwound and what would be the effective exchange rate for the payment of the Euros.
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i To establish a hedge for the currency exposure the UK company can make use of currency futures Sin... View the full answer
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
Posted Date:
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