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.

a. Calculate the futures price per contract.

b. Calculate the hedge ratio (round down), based on the question above?

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

d. 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?

e. Calculate the profit or loss on the spot position?

f. 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?