Results of the exporter spot market transaction and hedge

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Reference no: EM132018151

Scenario: On April 2, 2018, a Texas exporter shipped 43,000 pounds of frozen chicken quarters to a Mexican importer at a price of $1.39/lb. The exporter has agreed getting paid on June 2 in Mexican Pesos (MXP) but using April 2nd exchange rates.

Currently, the spot and June futures MXPUSD exchange rates are as follows:

Apr 2 Spot: $0.0549/MXP Apr 2 Jun Futures: $0.0542/MXP

Given that on June 2, the spot MXPUSD rate is $0.0562/MXP and the June Futures rate is $0.0558/MXP, what are the results of the exporter’s spot market transaction and hedge. Please round to the nearest U.S. dollar?

Did the hedge work as planned? Why or why not?

When negotiating the sale, what could the exporter have insisted on that, if agreed on, would have avoided the need for the exporter to hedge? How would this have impacted the importer?

Reference no: EM132018151

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