You are the finance director of a British company which is expecting a payment in euros of €200 million at the end of September and wish to hedge against currency risk. However, the nearest maturity date for a euro futures contract is on 13 December and it is now 29 January. The face value of one euro futures contract is €100,000. The spot rate today is £0.9/€ and the futures rate is £0.85/€.

(a) Estimate the number of futures contracts required.

(b) Assume that at the end of September, the spot rate turns out to be £0.95/€ and a futures contract taken out at the end of September to expire on 13 December is quoted at

£0.92/€. Estimate the total gain or loss earned by your company.

(c) Estimate the effective exchange rate received by your company.