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Category > Business & Finance Posted 12 May 2018 My Price 7.00

German company

 

 

Suppose a German company will receive US$2,000,000 in three months and they wish to hedge the for...

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Suppose a German company will receive US$2,000,000 in three months and they wish to hedge the foreign exchange rate risk associated with this payment. The spot exchange rate is $1 €0.70. They estimate that if the US dollar falls by €0.10 (i.e. to $1 €0.60) then the company will lose €200,000 on the transaction. If the current three month futures price is $1 €0.78 and dollar futures contracts are for $100,000 each, how should the company hedge its position? Demonstrate that the hedge is perfect by illustrating net payoff for a €0.10 fluctuation in exchange rates from current spot prices.

Suppose a German company will receive US$2,000,000 in three months and they wish to hedge the foreign exchange rate risk associated with this payment. The spot exchange rate is $1 = Euro 0.70. They estimate that if the US dollar falls by Euro 0.10 (i.e. to $1 = Euro 0.60) then the company will lose Euro 200,000 on the transaction. If the current three month futures price is $1 = Euro 0.78 and dollar futures contracts are for $100,000 each, how should the company hedge its position? Demonstrate that the hedge is perfect by illustrating net payoff for a Euro 0.10 fluctuation in exchange rates from current spot prices

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Maurice Tutor
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Status NEW Posted 12 May 2018 08:05 PM My Price 7.00

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