You are to pay €360,000 on May 16. Today’s spot rate is $1.10/€. The forward rate is $1.12/€. On May 16 the spot rate is $1.11/€. Futures contracts are for €125,000 each. Q1. How many contracts do you enter? Q2. Do you enter contracts to buy or to sell? On May 16 you, 1) close out the forward contracts, and 2) receive the €360,000 and exchange them for dollars. Q3. Did you make or lose money on the contracts? Q4. How much money did you make or lose on the contracts? Q5. When you combine the gain or loss on the futures contracts with the dollars exchanged for the €360,000 what was the effective dollar/euro total exchange rate? Q6. Why was the amount you received per euro more than the $1.12 future contract hedge amount?
You are to pay €360,000 on May 16. Today’s spot rate is $1.10/€. The forward rate is $1.12/€. On May 16 the spot rate is $1.11/€. Futures contracts are for €125,000 each.
Q1. How many contracts do you enter?
Q2. Do you enter contracts to buy or to sell?
On May 16 you, 1) close out the forward contracts, and 2) receive the €360,000 and exchange them for dollars.
Q3. Did you make or lose money on the contracts?
Q4. How much money did you make or lose on the contracts?
Q5. When you combine the gain or loss on the futures contracts with the dollars exchanged for the €360,000 what was the effective dollar/euro total exchange rate?
Q6. Why was the amount you received per euro more than the $1.12 future contract hedge amount?
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