It is 20th April. A US company expects to receive 625,000 in three months' time, in July
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Question:
A dollar/sterling futures contract is for £62,500 and the value of a tick is £6.25.On 20th April, the spot exchange rate is $1.8050/£1. The company deals in the September futures contracts at a price of 1.7800. Settlement date for the September futures is in five months' time exactly?
The US Company receives the £625,000 on 20th July and immediately closes its futures position. The spot rate on 20th July is 1.7700 and the futures price is 1.7600?
Required:(a) To what extent does the futures position provide a hedge for the company against currency risk, between 20th April and 20th July? To do this, compare the gain or loss on the underlying currency exposure with the gain or loss on the futures position?
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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