The corporate treasurer of a US multinational receives a fax on 21 February from its European subsidiary. The sub-sidiary will transfer e 10 million to the parent company on 16th August. The corporate treasurer decides to hedge the position using currency futures. The available spot and future rate of the Euro on the 21 February are: Spot US $1.0600/E September future US $1.1000/ December future US $1.1600/ (a) What expiry month will be chosen for the future by the corporate treasurer? (b) Will the corporate treasurer go long or short on the euro future? (c) If the corporate treasurer plans or sell dollar futures? to hedge through futures in the European currency market, will he (d) What is the unhedged and hedged outcome on 16th August, if the spot and futures rate on the 16th buy of August are as follows: Spot US $1.0100/ September future US $1.0200/ December future US $1.1200/

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a The corporate treasurer will choose the expiry month for the future contract based on the closest ... View the full answer