(a) Hedgers and Speculators have a symbiotic relationship. Explain what this means. The treasurer of a UK company, UVW has to pay $625,000 into a Eurodollar account in one month's time. The CME Sterling Currency Futures (STG) expiring in a month's time is currently priced at $1.25. The treasurer takes a hedged position by selling the STG futures and holding them to expiry. (b) How many contracts does she sell? The futures expire at the EDSP of $1.28. Compare in sterling the cost for the company in paying the $625,000 debt in her hedged versus unhedged position. (c) Comment on the decision to hedge.
(a) Hedgers and Speculators have a symbiotic relationship. Explain what this means. The treasurer of a UK company, UVW has to pay $625,000 into a Eurodollar account in one month's time. The CME Sterling Currency Futures (STG) expiring in a month's time is currently priced at $1.25. The treasurer takes a hedged position by selling the STG futures and holding them to expiry. (b) How many contracts does she sell? The futures expire at the EDSP of $1.28. Compare in sterling the cost for the company in paying the $625,000 debt in her hedged versus unhedged position. (c) Comment on the decision to hedge.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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
Transcribed Image Text:(a) Hedgers and Speculators have a symbiotic relationship. Explain what this means.
The treasurer of a UK company, UVW has to pay $625,000 into a Eurodollar account
in one month's time. The CME Sterling Currency Futures (STG) expiring in a
month's time is currently priced at $1.25. The treasurer takes a hedged position by
selling the STG futures and holding them to expiry.
(b) How many contracts does she sell? The futures expire at the EDSP of $1.28.
Compare in sterling the cost for the company in paying the $625,000 debt in her
hedged versus unhedged position.
(c) Comment on the decision to hedge.
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