1. Your U.S. firm conducts business globally, including Nepal. Your firm is expecting the receipt of 30 billion Nepalese rupees (NPR) in exactly 6 months. To minimize currency exchange risk, you've been tasked with using futures to minimize this exposure.

Unfortunately for you, there are no futures contracts written on the USD/NPR exchange rate. However, you've identified 3 potential futures contracts to use for hedging this risk: USD/Indian rupees (INR) futures, USD/Israeli shekelim (ILS) futures, and USD/South African rand (ZAR) futures. All three futures contracts deliver the foreign currency in 6 months.

Design the optimal hedge for your firm's NPR 30 billion currency exposure. Determine the correct futures security to use in the hedge and the number (and position) of contracts to enter that will minimize the currency exchange rate risk of the firm. And calculate the percent reduction of risk that results from this hedging strategy.

USD/INR:https://www.cmegroup.com/markets/fx/emerging-market/indian-rupee.html

USD/ILS:https://www.cmegroup.com/markets/fx/emerging-market/israeli-shekel.html

USD/ZAR:https://www.cmegroup.com/markets/fx/emerging-market/south-african-rand.html