Question
Your company will receive one million GBPs in 30 days as payment for goods shipped. At the current spot exchange rate of $1.50/GBP the USD
Your company will receive one million GBPs in 30 days as payment for goods shipped. At the current spot exchange rate of $1.50/GBP the USD value of the receivable will be $1.5M. Your concern is that the GBP will depreciate over the next 30 days. For example, if the GBP-USD rate fell to $1.45 the USD value of the receivable would fall to $1.45M, a loss of $50K.
Set up on offsetting position in the currency futures market that will fully offset any depreciation in the GBP. Assume that futures contracts on the IMM are sold in multiples of 62,500 GBPs.
Make sure you compute the Hedge Ratio = HR=Amount-at-Risk / futures contract size.
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