Question: Hello, can someone please help me answer this question please and thank you You are the vice-president of finance for Exploratory Resources, headquartered in Calgary.

Hello, can someone please help me answer this question please and thank you

You are the vice-president of finance for Exploratory Resources, headquartered in Calgary. In January 2012, your firm's American subsidiary obtained a six-month loan of $1 million (U.S.) from a bank in Calgary to finance the acquisition of an oil-producing property in Oklahoma. The loan will also be repaid in U.S. dollars. At the time of the loan, the spot exchange rate was US$1.0125/C$ and the U.S. currency was selling at a premium in the forward market. The June 2012 futures contract (face value = $100,000 per contract) was quoted at US$1.0107.

Explain how the Calgary bank could lose on this transaction.
How much is the bank expected to lose/gain due to foreign exchange risk?
If there is a $100 total brokerage commission per contract, would you still recommend that the bank hedge in the currency futures market?

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