Question
A US firm is receiving 7m EUR in 3 months time. EUR Futures are available on the Chicago Mercantile Exchange (CME) with a contract size
A US firm is receiving 7m EUR in 3 months time. EUR Futures are available on the Chicago Mercantile Exchange (CME) with a contract size of 125,000 Euros and currently trade at 1.15 EUR/USD. The contract maintenance margin is 2300 USD with an initial margin of 110% of the maintenance margin.
-
a) Does the firm have a long or short foreign currency exposure?
-
b) In order to hedge does the firm need to buy or sell Futures contracts?
-
c) How many contract positions should be entered in to?
-
d) What will be the initial futures cash flow required?
-
e) Assuming that the exposure and contract maturity dates are the same, what is the expected
total net USD cashflow? (You may ignore the time value of money) Show all workings.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Multinational Finance
Authors: Kirt C. Butler
3rd Edition
0324177453, 978-0324177459
