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On January 10, Volkswagen agrees to import auto parts worth $7 million from the U.S.

The parts will be delivered on March 4 and are payable immediately in dollars. VW decides to hedge its dollar position by entering into futures contracts The spot rate is $1.3447/and the March 4th futures price is $1.3502/.

Calculate the number of futures contracts that VW needs.

(Assume a futures contract size of 125,000). On March 4th, the spot rate turns out to be $1.3452/, while the March 4th futures price is $1.3468.

Calculate VW's net euro gain or loss on its futures position.

Compare cost of buy mg $7,000,000 with hedging to the cost of buying $7,000,000 without hedging.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92797325

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