Suppose you own a portfolio of British securities valued at $430,000. The exchange rate is currently at $1= £0.57. A currency futurescontract on British pounds is set at 62,500 pounds.a. How many contracts must you purchase to protect your portfolio from exchange rate risk?b. Suppose 1 month after you purchase the contracts, the exchange rate changes to $1 = £0.59. What is your profit/loss in USD?

a):Total exposure in dollar terms = $430,000Total exposure in pound terms = $430,000*0.57 = 245,100…

a. How many contracts must you purchase to protect your portfolio from exchange rate risk? b. Suppose 1 month after you purchase the contracts, the exchange rate changes to $1 = £0.59. What is your profit/loss in USD?

a. How many contracts must you purchase to protect your portfolio from exchange rate risk? b. Suppose 1 month after you purchase the contracts, the exchange rate changes to $1 = £0.59. What is your profit/loss in USD?

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

Section: Chapter Questions

Problem 1PS

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