McCain Food Ltd. expects to receive ¥ 500 million on December 28, 2016, from a Japanese importer of its products. Today is September 28 2016 and the spot price between C$ and is C$0.011 92-¥1.0. The 3- month futures exchange rate is C$0.012 per one yen. One futures contract is of the size of¥ 12.5 million Show how McCain foods can hedge the receipt of the 500 million by using the futures market. Secondly, show McCain Foods profit(loss), assuming that the exchange rate on December 28, 2016, is C$0.02 per ¥. Thirdly, explain how cash settlement, instead of actual delivery, will work?

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Current Exchange Rate C 001192 1 Yen Receivables Size 500 million Yen One Future Contract Size 125 million Yen and Futures Rate C 0012 Yen Number of C... View the full answer