4. Assume a U.S. firm today (Day 1) buys 987,000 British pounds worth of goods in the U.K. to be paid at expiration. Answer the following questions:

Day 1 $1.2939 / GBP 1 Expiration $1.2026 / GBP 1

1. How many $ do they expect to receive at expiration?

2. At expiration how many $ will they actually receive?

3. What is the difference between $ expected and $ actually received?

4. If on Day 1 they want to hedge their currency risk, should they buy or sell pound futures contracts?

5. How many contracts should they buy/sell?

6. At expiration, how many dollars did they gain / lose on their futures position?

7. Does the Gain/Loss in the futures market offset the difference calculated in question c? If not, what is the difference (plus or minus)