Today is $1$ January $2023.$ The current spot rate is US$$1\mathrm{.}71110/.$ ABC Plc$.,$ a UK company, has a US $$6,650,000$ invoice to pay on $25$ April $2023.$ ABC is concerned that exchange rate fluctuations could increase the $$ cost and, hence, seek to effectively fix the $$ cost using currency futures. The futures' contract size is $100,000$ and the following futures prices are available:

March expiry

June expiry

September expiry

US$$1\mathrm{.}71205/$

US$$1\mathrm{.}71035/$

US$$1\mathrm{.}70865/$

Required:

a$)$ Set up the hedge $($Hint: Round the contract numbers to the nearest whole number$).$

$(4$ Marks$)$

b$)$ Compute the result of using the currency futures hedge on ${25}^{th}$ April $2023,$ if the applicable currency future is trading at US$$1\mathrm{.}65750/$ and the spot rate is US$$1\mathrm{.}65770/.$

$(9$ Marks$)$

$(2$ Marks$)$

c$)$ Calculate the hedging efficiency