2. In October a U.S. Company is expecting to pay in December to its European Supplier 200 million, and wants to hedge against a rise in the value of the Euro relative to the U.S. dollar in December. In October the spot exchange rate Euro is $1.2525. The CME currency future settle rate for December Euro futures contacts is 1 Euro = $1.2526, with each contract for 125,000 Euros per contract. a. What position and how many contracts should the financial manager take to hedge against a rise in the Euro? Explain why. (hint # contracts = Amount of Euros Hedging / 125,000 Euros per contract), always take a position that will give you a futures gain to offset your spot loss in the event of what you want to hedge. Type of Position _____________ Why this Position because they will have a gain if the Euro rises__________ Number of Contracts_______________________________

b. Suppose in December the spot rate for the Euro rises to $1.3310 and the futures settle rate has risen to $ 1.3326. 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 _____________ (Futures Gain or Loss