7 The spot rate for euros - $1.25/€ and the 3-month future is $1.20/€The spot rate for pounds $1.15/E and the 3-month future is $1.05/EYou owe €1,000,000 in 3 monthsYou are going to receive £1,000,000 in 3 monthsIf you choose to hedge with futures you must thinkThe spot rate in 3 months will be below $1.20/€ in three months and the spot rate will be below $1.05/E in three monthsO The spot rate in 3 months will be above $1.20/€ in three months and the spot rate will be above $1.05/E in three monthsO The spot rate in 3 months will be above $1.20/€ in three months and the spot rate will be below $1.05/E in three months.O The spot rate in 3 months will be below $1.20/€ in three months and the spot rate will be above $1.05/E in three months

concept. Futures contracts are use to hedge foreign currency risk or exposure. They are used to…

The spot rate for euros $1.25/€ and the 3-month future is $1.20/€ The spot rate for pounds $1.15/E and the 3-month future is $1.05/E You owe €1,000,000 in 3 months You are going to receive £1,000,000 in 3 months If you choose to hedge with futures you must think, O The spot rate in 3 months will be below $1.20/€ in three months and the spot rate will be below $1.05/E in three months The spot rate in 3 months will be above $1.20/€ in three months and the spot rate will be above $1.05/E in three months The spot rate in 3 months will be above $1.20/€ in three months and the spot rate will be below $1.05/E in three months The spot rate in 3 months will be below $1.20/€ in three months and the spot rate will be above $1.05/E in three months

The spot rate for euros $1.25/€ and the 3-month future is $1.20/€ The spot rate for pounds $1.15/E and the 3-month future is $1.05/E You owe €1,000,000 in 3 months You are going to receive £1,000,000 in 3 months If you choose to hedge with futures you must think, O The spot rate in 3 months will be below $1.20/€ in three months and the spot rate will be below $1.05/E in three months The spot rate in 3 months will be above $1.20/€ in three months and the spot rate will be above $1.05/E in three months The spot rate in 3 months will be above $1.20/€ in three months and the spot rate will be below $1.05/E in three months The spot rate in 3 months will be below $1.20/€ in three months and the spot rate will be above $1.05/E in three months

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 56QA

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Similar questions

Suppose the September Eurodollar futures contract has a price of 96.4. You plan to borrow $50m for 3 months in September at LIBOR, and you intend to use the Eurodollar contract to hedge your borrowing rate. a. What rate can you secure? b. Will you be long or short the Eurodollar contract? c. How many contracts will you enter into? d. Assuming the true 3-month LIBOR is 1% in September, what is the settlement in dollars at expiration of the futures contract? (For purposes of this question, ignore daily marking-to-market on the futures contract.)
Your company needs £500,000 per month. You choose to hedge half of the required amount by entering into a futures contract at $1.148/E. How much did you save by hedging if the spot price today is $1.195/£?
Your company expects to pay GBP 1,500,000 in 180 days. The 180 day forward rate for GBP is $1.80 and the current spot rate is $1.76. If you use a forward hedge, estimate the cost of hedging the payable if, 90 days later, the spot rate for GBP turns out to be $1.82 O $30,000 O O $90,000 O D
Suppose we wish to borrow $10 million for 3 months, and that the quoted Eurodollar futures price is 94.80. If the interest rate on the loan is based on the 3-month LIBOR rate, what will we pay to repay the loan (that is, the total amount we need to repay including principal and interest based on LIBOR)? Question 16 options: $10, 160, 000.00 $10, 130,000.00 $10, 115,000.00 $10, 640,000.00 $10,520,000.00
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