Australian Dollar Hedge

Suppose you are working for a company that does business with Australia. Your company has closed a deal where you will provide consulting services to the Australian firm and they will pay you a sum of 300,000 AUD pesos in January 2021. Your boss asks you to hedge to exchange rate risk that you face.

The CME AUD contract has a contract size of 100,000 AUD. The current exchange rate is 0.72 $/AUD and the current price of a March 2021 futures contract is 0.71$/AUD.

In January 2021 when you lift your hedge, the spot exchange rate moved to 0.70 $/AUD and the March 2021 futures price settles at 0.68 $/AUD.

Assume transaction fees of $15 per roundtrip per futures contract and a hedge ratio of 1.0 when answering the questions below. Round to the nearest whole number of contracts.

Question 5 (1 point)

Saved

Did you first go long or short futures to initiate your hedge?

Question 5 options:

	LONG
	SHORT

Question 6 (1 point)

Saved

How many futures contracts do you trade for your hedge?

Your Answer:

Question 6 options:

Answer

Question 7 (1 point)

What is the gain (loss) in the futures market (after accounting for transaction fees of $15 per roundtrip)?

Enter your answer without dollar signs or commas. For a profit, enter a positive number. For a loss, enter a negative number.

Your Answer:

Question 7 options:

Answer

Question 8 (1 point)

What is the net outcome of the hedge in terms of $/AUD?

Do not enter dollar signs or commas. Please enter your answer significant to FIVE decimal places. For example, if you believe the net outcome is a gold price of $0.21120/AUD, simply enter "0.21120"

Your Answer:

Question 8 options:

Answer