Question $4$

On March $20,$ ABC Co$.$ agrees to import auto parts worth $$10$ million from the U$.$S$.$ The parts

will be delivered on July $14$ and are payable immediately in dollars. ABC Co$.$ decides to hedge

its dollar position by entering into CME futures contracts. The spot rate is $$\frac{1\mathrm{.}0747}{},$ and the

July futures price is $$\frac{1\mathrm{.}0602}{}.(1$ contract is for $100,000$ and delivery is on July $31)$

a$.$ Calculate the number of futures contracts that ABC must buy to offset its dollar

exchange risk on the parts contract.

b$.$ On July $14,$ the spot rate turns out to be $$\frac{1\mathrm{.}0658}{},$ while the July futures price is

$$\frac{1\mathrm{.}0625}{}.$ Calculate ABC's net euro gain or loss on its hedged position.