Using futures contracts that will hedge exchange rate risk

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Reference no: EM131992633

1. Your firm is a U.K.-based exporter of British bicycles. You have sold an order to an American firm for $1,000,000 worth of bicycles. Payment from the American firm (in U.S. dollars) is due in six months. Detail a strategy using futures contracts that will hedge your exchange rate risk. SHOW YOUR WORK.

A. Go short 12 six-month forward contracts; pay £555,600.

B. Go short 16 six-month forward contracts. Pay approximately £537,600.

C. Go long 12 six-month forward contracts. Receive approximately £549,500.

D. Go long 16 six-month forward contracts; raise approximately £537,600.

2. Assume the profit margin and dividend payout ratios are consistent. What is the projected earnings on the income statement if sales increase by 7%? Currently, the firm's sales = $4700, net income is $420, total assets are $7890, dividends are $125, A/P is $790, LTD = $3130, and common stock is $2780, and retained earnings are $1190.

A. 315.65 B. 896.25 C. 1505.65 D. 2060.25

Reference no: EM131992633

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