1.For this and the next 6 questions. A multinational financial institution in Chicago wishes to transfer 50,000,000 from a bank in Berlin, Germany. The transfer will take place in February although the transaction will be hedged with March euro futures contract - which matures one month after the month of the funds transfer. Current spot exchange rate for the euro is $1.30. Euro futures price for March delivery is $1.28. The size for one euro futures contract is 125,000. Calculate the futures price per contract. Caution! Errors carry over into the next problems.

$406.25

$160,000

$162,500

$65,000,000

None of the above

QUESTION 2

1.With respect to the above transaction, calculate the hedge ratio (round down).

About 406

About 160

About 162

None of the above

QUESTION 3

1.To hedge the exchange rate risk involved in this transaction, the Chicago firm should

Sell euro futures

Buy euro futures

Initiate a long position in euro futures

None of the above

QUESTION 4

1.Suppose that on the hedge lifting date in February the value of the euro has dropped to $1.25. Also on this date, the March euro futures price is $1.24. How much would the 50,000,000 convert to - in USD - in the international transfer?

$62,500,000

$62,000,000

$64,000,000

None of the above

QUESTION 5

1.Calculate the profit or loss on the spot position.

-$2,500,000

$2,500,000

-$2,030,000

-$500,000

None of the above

QUESTION 6

1.Notice that the Chicago firm will offset the futures position in February. Calculate the profit on the futures transaction, taking into account the total number of contracts involved.

-$2,500,000

$2,500,000

-$470,000

-$2,030,000

None of the above

QUESTION 7

1.Calculate the HEDGE profit on the spot and futures transactions.

-$2,500,000

$2,500,000

-$470,000

-$2,030,000

None of the above