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Question: A French business is due to pay $


A French business is due to pay $3 million in six months’ time to a US supplier. In order to hedge against currency risk, the French business decides to sell euro futures immediately at €1 = $1.1306 and to close its position by buying euro futures in six months’ time. The contract size is €125,000 (Work to the nearest contract). The tick size is 0.01 cents and the tick value is $12.50.

Required:
Assuming that in six months’ time the spot rate is €1 = $1.1274 and the euros future rate is €1 = $1.1289, what is the hedging gain or loss on the futures contract?


2.99

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