Problemon january 10 volkswagen agrees to import auto parts, Ask an Expert

Accounting

Problem:

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 IMM futures contracts. The spot rate is $1.3447/€ and the March futures price is $1.3502.

Required:

Question: Calculate the number of futures contracts that VW must buy or sell to offset its dollar exchange risk on the parts contract if each contract is worth €125,000.

Note: Show supporting computations in good form.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167062

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