Question 18 (2 points)

Game Station is a UK gaming firm. The firm in the UK is planning to import $84,375 US worth of play stations from the US. It needs to make the payment on November 23, and it is now September 13. Current spot rate is 1.3139 SUS/. The following information about futures contracts is available:

British futures price: 1.35 SUS/

Futures contract size: 62,500

Futures maturity date: December contracts mature on December 20

The firm has reliable forecast for the future spot rate on November 23, and it is 1.2570 SUS/. Also it has a futures price forecast for the same date, and it is 1.270 SUS/. (Note: assume that daily marking to market is not used and all profits or losses on the futures position are paid when the position is closed out)

If the firm hedges the exchange rate risk exposure using futures, it will take a ___ position in futures. Using the forecasted values available, net of the hedging benefits, it will cost them firm ___ to meet its obligation for purchasing the play stations.

• None of these
• short, around 62,301
• long, around 63,146
• long, around 62,301
• short, around 63,146