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A manufacturer expects to be paid 1 0 million euros in two months for the sale of equipment in Europe. Currently, 1 euro = US$
A manufacturer expects to be paid million euros in two months for the sale of equipment in Europe. Currently, euro US$ and the manufacturer would like to lockin that exchange rate.
Assuming that contract is for euros and that the exchange requires a euros per contract margin requirement to trade on the exchange, outline a hedging strategy along with the requisite calculations to demonstrate the success or failure of the strategy that the manufacturer can use via the futures market to negate any losses due to foreign currency risk. Assume that the euroUS$ rate is euro US$ in two months time.
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