Imagine you are the corporate treasurer for an Import/Export company located in the United States. You import goods from Canada and Export to the United Kingdom. You have decided to use currency futures to hedge your exposure to fluctuations in one of your import currencies and one of your export currencies. You set up a hedge on January 05 using March futures on each of the currencies and will close out your hedge on February 10th, 2022. a. Show the result of a hedging strategy using March futures contracts on Canadian dollars and March futures contracts on British Pounds.

Consider the amount of each foreign currency to be 500 million.

Your analysis should include the effective rate compared to the spot rate for an un-hedged position for each currency.

Ignore Margin requirements.

HINT: Remember if you expect to receive the currency (and hence will want to sell it), a short hedge is appropriate and if you expect to pay the currency (and hence will need to purchase it), then a long hedge is appropriate.

January 05 Futures Prices:

March 22 Canadian dollar 0.78395

March 22 British Pound - 1.3557

January 05 Spot Rates (dollars per foreign currency):

Canadian dollar - 0.787379

British Pound - 1.35508

February 10 Futures price

- March 22 Canadian Dollar - 0.7853

- March 22 British Pound - 1.3563

February 10 Spot price

- Canadian dollar - 0.78585

- British pound - 1.35578