Q1. A US importer, IMP, will purchase 500 Italian sports cars on the 15th trading day of FEB, APR, JUL and OCT of 2022. The price is fixed at EUR40,000/car. The current spot exchange rate is S(USD/EUR) = 1.10. The current futures exchange rates for delivery on MAR22, JUN22, SEP22 and DEC22 are: F(USD/EUR) = 1.15; F(USD/EUR) = 1.20; F(USD/EUR) = 1.25; and F(USD/EUR) = 1.30, respectively.

Use a time table to describe how IMP opens a strip hedge based on hedge ratio, h = 1. One EUR futures is for the delivery of EUR125,000.

Q2.

2.1 In the same table you opened in Q1 show all the steps of the strip hedge as time goes by all the way to OCT 15 2022. Given are the spot exchange rates on the 15th trading day of FEB 22, APR 22, JUL 22 and OCT 22:

S(USD/EUR) = 1.10; S(USD/EUR) = 1.20; S(USD?EUR) = 1.28; S(USD/EUR) = 1.35, respectively. Also given is that on the spot trading days the respective futures prices for the respective delivery months turn out to be: F(USD/USD) = 1.17; F(USD/EUR) = 1.19; F(USD/EUR) = 1.26 and F(USD/EUR) = 1.32.

2.2 Calculate the total USD IMP will pay for the cars without the hedge and with the hedge.