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On January 10, Volkswagen agrees to import auto parts worth $7 million from the United States. The parts will be delivered on March 4 and
On January 10, Volkswagen agrees to import auto parts worth $7 million from the United States. The parts will be delivered on March 4 and are payable immediately in dollars. VW decides to hedge its dollar position by entering into IMM futures contracts. The spot rate is $0.8947/Euro and the March futures price is $0.9002/Euro. Each contract is for 125.000 Euros. a) Does Volkswagen buy or sell IMM futures? b) How many contracts is needed? c) On March 4, the spot rate turns out to be $0.8952/Euro while the March future price is $0.8968/Euro. Calculate VW's net euro gain or loss on its futures position? d) What is the actual cost that Volkswagen pays for the $7,000,000
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