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A US importer, who incurs costs in Euros as well as bills its customers in USD, is concerned regarding the depreciation of USD against Euro because of EURO payables of 25,000,000 in a month. To hedge (protect himself/herself) the position, importer decides to employ futures markets. Currently EUR contracts (125,000 EUR each) are traded at 1.3725. Spot rate is 1.3615 (i.e. 1.3615 USD per 1 EUR). Assume the exporter takes an equal futures position to its cash market position (Euro 25m) at 1.3725. Suppose that futures contract price and spot rates are 1.3755 and 1.3745 respectively when the hedge is liquidated. What should be the unit cost per EURO for the exporter in terms of USD?

1.3525

1.3945

1.3600

1.3715

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  • Category:- Basic Finance
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