In October, a Denver Import Company is expecting in December to have to pay a bill to its Euro suppliers for 8,125,000 Euros and wants to hedge
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In October, a Denver Import Company is expecting in December to have to pay a bill to its Euro suppliers

for 8,125,000 Euros and wants to hedge against a rise in the value of the Euro relative to the U.S. dollar in December when the payment is due.

 

At this time the spot exchange rate Euro is $1.1079 USD.  The CME Group future settle rate for a December Euro FX futures contracts is 1 Euro = $1.1337 USD, with each futures contract for 125,000 Euros per contract.

 

b.     Suppose in December the spot rate for the Euro changes to $1.2345 USD and the Euro futures FX price changes to $1.2607 USD.  Calculate the spot opportunity loss or gain for the company and the futures gain or loss.  What is the net hedging result?

 

Spot Gain or Loss ____________   Futures Gain or Loss ___________

 

Net Hedging Result _____________

 

Top Answer

Spot Gain or Loss = $15,825... View the full answer

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