At the start of the sample period, your company receives 5,000,000 Euros, which you plan to convert
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At the start of the sample period, your company receives 5,000,000 Euros, which you plan to convert into US dollars at the end of sample period for tax reasons.
Since the foreign exchange rate changes every day, the US dollar value of your foreign currency at the end of the sample period will be uncertain. Your objective is to reduce this exchange rate risk. You decide to hedge this risk using EUR/USD (=Euro FX) futures contract expiring in June 2015.
How many futures contract do you have to buy or short to hedge the risk? Specify explicitly whether you are buying or shorting.
Related Book For
Government and Not for Profit Accounting Concepts and Practices
ISBN: 978-1118155974
6th edition
Authors: Michael H. Granof, Saleha B. Khumawala
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