1. In February 2024, a U.S. Company is expecting to have to pay 2,500,000 Euros in April to its French suppliers, and wants to hedge against a rise in the value of the Euro relative to the U.S. dollar in April.

At this time the spot exchange rate Euro is $1.0799 USD. The CME Group future settle rate for a Euro FX April 2024 futures contacts is 1 Euro = $1.0906 USD, with each futures contract for 125,000 Euros per contract.

a. What position and how many contracts should the financial manager take for the hedge? Explain why. (hint # contracts = Amount of Euros Hedging / 125,000 Euros per contract),

Type of Positionsell euro futures Why this Position the US company is expecting to receive 3,500,000 Euros and the exchange ratio has base currency as Euros so we will have to sell Euros.

Number of Contracts 20

1. Suppose in April the spot rate for the Euro rises to $1.1879 USD and the Euro futures FX price rises to $1.1997 USD. Calculate the spot opportunity loss or gain for the company and the futures gain or loss. What is the net hedging result?

Spot Gain or Loss ____________ Futures Gain or Loss ___________

Net Hedging Result _____________ (Futures Gain or Loss - Spot Gain or Loss)