Consider a U.S. portfolio manager who invests 5,000,000 in shares of a U.K. company. In order to

Question:

Consider a U.S. manager who invests £5,000,000 in shares of a U.K. company. In order to hedge the stock market risk, he sells FTSE stock index futures that expire in three months. The current price of the FTSE stock index futures contract is 4,098 with a multiplier of £10. The current is $1.58/£. One month later, the investment in the U.K. Company is worth £5,022,000. The FI'SE stock index futures price is now 4,200 and the is $ 1.65/£.
a. Calculate the number of futures contracts that the manager must sell.
b. Calculate the profit or loss in dollar terms and pound terms.
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...