Question
Scenario: On April 2, 2018, a Texas exporter shipped 43,000 pounds of frozen chicken quarters to a Mexican importer at a price of $1.39/lb. The
Scenario: On April 2, 2018, a Texas exporter shipped 43,000 pounds of frozen chicken quarters to a Mexican importer at a price of $1.39/lb. The exporter has agreed getting paid on June 2 in Mexican Pesos (MXP) but using April 2nd exchange rates.
Currently, the spot and June futures MXPUSD exchange rates are as follows:
Apr 2 Spot: $0.0549/MXP Apr 2 Jun Futures: $0.0542/MXP
The MXPUSD December futures contracts are available in denominations of MXP500,000 and are settled on June 18, 2018. What would be the exporters strategy to hedge as much of the exchange rate risk as possible and what does the exporter expect the result to be?
Is this a perfect hedge? Why or why not?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Small Business Management Launching and Growing New Ventures
Authors: Justin Longenecker, Leo Donlevy, Terri Champion, William Petty, Leslie Palich, Frank Hoy
6th Canadian edition
176532218, 978-0176532215
