You are an importer with a contract to buy 40000000 bars of, Ask an Expert

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You are an importer with a contract to buy 40,000,000 bars of famous Utopian TastesGreat chocolate for a fixed price of 20 Utopian Liras (UTL) each. The current futures price is $0.16/UTL, and the contract specifies delivery of 62,500 UTLs per contact. Assume you can take fractional futures positions if you need to. The exchange rate when you buy the goods will be either $0.18 (with probability 2/3) or $0.15 (with probability 1/3). What position would you take to hedge yourself? Long or short, and how many contracts? Show your resulting total costs (including the futures position) when the exchange rate is $0.18 and when it is $0.15.

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Financial Management, Finance

Category:- Financial Management
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