On 5/12/22 a US importer signs a contract to purchase 500 Italian sport cars on the 15
Question:
On 5/12/22 a US importer signs a contract to purchase 500 Italian sport cars on the 15th of FEB 2023 and the 15th of JUL 2023. The car price is fixed at EUR100,000/car. The US importer hedges the exchange rate risk using the MAR 2023 EUR futures which is trading on 5/12/22 for F(MAR)= USD1.20/EUR and the SEP 2023 EUR futures which is trading on 5/12/22 for F(SEP)= USD1.35/EUR). On 5/12/22 the spot exchange rate is USD1.30/EUR.
On 2/15/23 the spot exchange rate is USD1.05/EUR and the MAR 23 EUR futures is F(MAR) = USD1.10/EUR and the importer closes the MAR 2023 hedge. On 7/15/23 the spot exchange rate is USD1.10/EUR and the importer closes the SEP hedge with the EUR futures for F(SEP) = USD 1.05/EUR. EUR futures is for the delivery of EUR125,000.
Show the complete time table of the hedge and calculate the total cost of the cars on both purchases with and without the hedge.
Frank Woods Business Accounting Volume 2
ISBN: 9781292085050
13th Edition
Authors: Frank Wood, Alan Sangster