Set up hedging strategy using the futures market

Assignment Help Financial Management

Reference no: EM131948705

An energy company located in Russia has entered into a contract to export natural gas into Europe with delivery in three months. The contract is denominated in EUR and is valued at EUR100 million. The spot exchange rate is EUR/RUB49.2820. Assume that the spot rate in three months’ time is EUR/RUB46.6060 and that there is no basis risk between the futures market and the spot FX markets.

a) Set up a hedging strategy using the futures market. Show your calculations. Explain the outcomes of the strategy. Assume that EUR futures have a face value of EUR 100,000 per contract.

Reference no: EM131948705

Questions Cloud

Close to current medium-term market rates : Outline what the manager would do today in the financial futures market in order to secure a return that is close to current medium-term market rates.

Compute value of inventory listed on firm balance sheet : Brenda's Bar and Grill has current liabilities of $22 million. Cash makes up 15 percent of the current assets and accounts receivable makes up another.

What will be the fra agreed rate : What will be the FRA agreed rate? Which party to the FRA will make the compensation payment?

Estimate stand-alone selling price of installation service : Estimate the stand-alone selling price of the installation service using the expected cost plus margin approach. Estimate the stand-alone selling price.

Set up hedging strategy using the futures market : Set up a hedging strategy using the futures market. Show your calculations. Explain the outcomes of the strategy.

Show the net valuation effect of the hedging strategy : Show the net valuation effect of the hedging strategy. In three months’ time: close out the open position.

Explain negative pressure ventilation : Explain Negative pressure ventilation. Describe the three phase variables for a mechanical breath to be delivered: Trigger, Limit, and Cycle.

At what level of sales should the firm be willing to abandon : Brewster's is considering a project with a 5-year life and an initial cost of $120,000. The discount rate for the project is 12 percent.

What annual rate would the have to be invested : At what annual rate would the following have to be invested? $9,063, to grow to $28,055, in 37 years.

User Account

All Pages