What is the net outcome of the hedge in terms of $/bbl.?

Do not enter dollar signs or commas. Please enter your answer significant to THREE decimal places. For example, if you believe the net outcome is an oil price of $50/oz, simply enter "50.000"

Answer

Suppose you are working for a company that does business with Australia. Your company has closed a deal where you will provide consulting services to the Australian firm and they will pay you a sum of 300,000 AUD in January 2022. Your boss asks you to hedge to exchange rate risk that you face.

The CME AUD contract has a contract size of 100,000 AUD. The current exchange rate is 0.72 $/AUD and the current price of a March 2022 futures contract is 0.71$/AUD.

In January 2022 when you lift your hedge, the spot exchange rate moved to 0.70 $/AUD and the March 2022 futures price settles at 0.68 $/AUD.

Assume transaction fees of $15 per roundtrip per futures contract and a hedge ratio of 1.0 when answering the questions below. Round to the nearest whole number of contracts.

	LONG
	SHORT

How many futures contracts do you trade for your hedge?

Answer