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undefined Imagine that in September, a U.S. company agrees to buy industrial equipment from a German manufacturer. Payment of 1 million euros is due upon
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Imagine that in September, a U.S. company agrees to buy industrial equipment from a German manufacturer. Payment of 1 million euros is due upon delivery in December. As of September, the euro/dollar exchange rate is $1.36 (1.36 dollars to buy 1 euro). The company is worried that the euro might appreciate until the payment due date and wants to hedge its currency exposure using futures contracts. The current price of Euro FX futures maturing in December is $1.37. Each contract represents an underlying value of 125,000 euros. Enter a positive number for long or a negative number for short positions. a) How many contracts should the company long or short? If the spot price of euro rises to $1.46 by December, then Enter a positive number for a profit or a negative number for a loss. b) What would be the profit or loss on the payment that is due, compared to setting aside 1 million euros in September? $ c) What would be the profit or loss on the futures contract? $Step by Step Solution
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