Question
An energy company located in Russia has entered into a contract to export natural gas into Europe with delivery in three months. The contract is
An energy company located in Russia has entered into a contract to export natural gas into Europe with delivery in three months. The contract is denominated in EUR and is valued at EUR100 million. The spot exchange rate is EUR/RUB49.2820. Assume that the spot rate in three months time is EUR/RUB46.6060 and that there is no basis risk between the futures market and the spot FX markets. a) Set up a hedging strategy using the futures market. Show your calculations. Explain the outcomes of the strategy. Assume that EUR futures have a face value of EUR 100,000 per contract
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