Use currency futures to hedge its exchange risk

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Reference no: EM13941714

Supposed that Volkswagen plans to import 250 Golfs from its plant in Dresden, Germany, to rebadge them as "CTS" and sell them in the US via their dealerships. The German subsidiary of the company has agreed to sell them for a total of Euro 10 million, which will be payable on April 09. We are on February 1, 2015. Explain how Volkswagen can use currency futures to hedge its exchange risk. How many futures contracts will Volkswagen need? Each Euro futures is for delivery of Euro 125,000.

Reference no: EM13941714

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