You are a multinational company based in the United States that plans to import goods from Europe
Question:
You are a multinational company based in the United States that plans to import goods from Europe in 6 months and requires 500,000 Euros. You are concerned about potential fluctuations in the exchange rate between the US dollar (USD) and the euro (EUR) and want to hedge your forex risk using futures contracts. Each forex futures contract represents €125,000. The current spot exchange rate is 1 EUR =1.0977 USD, and the futures price for a 6-month contract is 1 EUR = 1.1076 USD.
How many forex futures contracts do you need to hedge your entire import transaction? Show your calculations.
Assuming the futures price after 6 months is 1 EUR = 1.1238 USD and the spot exchange rate at that time is 1 EUR = 1.1225 USD, calculate the net gain or loss from your forex futures hedge. Show your calculations.
Business and Administrative Communication
ISBN: 978-0073403182
10th edition
Authors: Kitty o. locker, Donna s. kienzler