Your company is a UK based bicycle importer. You have ordered a bicycle worth €1,000,000 to an Italian company. Payment (in Euros) will be made within 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts there are of what type and maturity.

				US dollar equivalent								currency per US dollar
Contract Size			Country	Tuesday				Monday				Tuesday				Monday
£	10.000		England (pounds)	$	1.9600			$	1.9400			£	0,5102			£	0,5155
			1 month ahead	$	1.9700			$	1.9500			£	0,5076			£	0,5128
			3 months ahead	$	1.9800			$	1.9600			£	0,5051			£	0,5102
			6 months ahead	$	1.9900			$	1.9700			£	0,5025			£	0,5076
			12 months ahead	$	2.0000			$	1.9800			£	0,5000			£	0,5051
€	10.000		Euro	$	1.5600			$	1.5400			€	0,6410			€	0,6494
			1 month ahead	$	1.5700			$	1.5500			€	0,6369			€	0,6452
			3 months ahead	$	1.5800			$	1.5600			€	0,6329			€	0,6410
			6 months ahead	$	1.5900			$	1.5700			€	0,6289			€	0,6369
			12 months ahead	$	1.6000			$	1.5800			€	0,6250			€	0,6329
SFr.	10.000		Swiss Frank	$	0,9200			$	0,9000			SFr.	1.0870			SFr.	1.1111
			1 month ahead	$	0,9400			$	0,9200			SFr.	1.0638			SFr.	1.0870
			3 months ahead	$	0,9600			$	0,9400			SFr.	1.0417			SFr.	1.0638
			6 months ahead	$	0,9800			$	0,9600			SFr.	1.0204			SFr.	1.0417
			12 months ahead	$	1.0000			$	0,9800			SFr.	1.0000			SFr.	1.0204

Answer rating: 100% (QA)

To hedge the exchange rate risk the UKbased bicycle importer can use Euro futures contracts as follo... View the full answer