User Account

All Pages

What is the contract size

Assignment Help Business Economics
Reference no: EM133067741

Directions:

The sample period for this project is from 10/25/2021 to 11/24/2021 (4.5 weeks). You will need to collect real-time financial data starting from 10/25/2021.

On 10/25/2021, your company receives 3.75 million Euros for selling products in Germany. Currently, the EUR/USD exchange rate is 1.1613. So if you convert this 3.75 mil Euros to USD today, it will be worth $4,354,931. You are extremely happy with the current exchange rate and would take this US dollar value. However, if you convert now, you may have to pay tax today.

Instead, you decide to convert Euros to USD at the end of next month and delay paying the tax. However, this delayed conversion comes with a risk. Since EUR/USD exchange rate fluctuates every day, the US dollar value of your Euros next month will no longer be the same dollar amount. This risk is called currency risk, aka foreign exchange rate (FOREX) risk.

The objective of this project is to design/execute a strategy today such that the USD value stays close to $4.35 mil throughout the whole sample period. The financial instrument for this project is Euro FX futures contract expiring in Dec 2021 (ticker: /6EZ21 or E6Z21).

1. When you convert 3.75 mil Euros into USD next month, are you "buying" or "selling" Euros? To lock the future exchange rate in this case, should you "long" or "short" Euro FX futures today? Explain.

2. What is the contract size (aka. contract unit) of 1 Euro FX futures contract? Is the British Pound futures contract size the same as Euro FX futures? How many Euro FX futures contracts do you need to long/short today?

(Hint: Go to https://www.cmegroup.com (official futures exchange) and locate the Euro FX futures. Check "Contract Specs" tab.)

The rest of this project will confirm whether your actions taken on 10/25/2021 (=answers to Q1/Q2) are indeed the correct hedging strategy at the end. If you don't find sufficient evidence of lowering risk in Q3-Q10, it's likely that your answers to Q1/Q2 are incorrect so revise your answers and solve them again, as necessary.

Reference no: EM133067741

Questions Cloud

Calculate the after-tax cost of debt : -Nova Inc. is interested in measuring its overall cost of capital. The tax rate of the firm is currently 40%. The needed financial information and data are as f
Describe the results of the auction : The U.S. Treasury conducts its Dutch auction for the sale of $3,000 in par on a T-note with a 10-year original maturity. Wells Fargo bids a yield of 2.0% on $1,
Calculating expected task times : Calculating Expected Task Times and Draw the diagram that shows the relationship of the tasks - Determine the optimal solution through Stepping Stone and MODI
Low fixed costs relative : Assume LK Metals is similar to its industry with one exception; it has low fixed costs relative to all other firms in that industry.
What is the contract size : On 10/25/2021, your company receives 3.75 million Euros for selling products in Germany. Currently, the EUR/USD exchange rate is 1.1613.
Prepare classified statement of financial position : Prepare, in good format the following - Classified statement of financial position as of July 31, 2021
Ethical conduct in organization : Do you see this as a powerful way to ensure ethical conduct in an organization or not?
Resource-technical and system considerations : What are some Resource, technical and system considerations that you would take in account for when trying to increase or implement a new gaming tax?
Explain the likely effects that a rise in oil prices : German tourists are an important part of Spain's tourism industry. Explain the likely effects that a rise in oil prices will have on German demand for tourism t

Reviews

Write a Review

Business Economics Questions & Answers

  Economics assignment

This document contains various important questions and their appropriate answers in the subject field of Economics.

  Demand and supply curves

Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.

  Long-run perfectly competitive equilibrium for the firm

Evaluate Government intervene and correct this situation?(a) Explain the concept of a concentration ratio. A rise in the price of magarine Explain the impact of external costs and external benefits on resource allocation long-run perfectly c..

  Supply and demand diagrams

Explain each of the following using supply and demand diagrams,  With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes.

  Case study: fisher-price toys

The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.

  Draw the production possibility curve

Draw the production possibility curve and a. Define consumer surplus and producer surplus.

  Tax revenue

The Australian government administers two programs that affect the market for cigarettes

  Maximize total welfare

How many tickets to sell to maximize total welfare.

  Difference between the cv and the ev

The change in consumer surplus (?CS) is not "theoretically" justifiable like the CV and EV but it continues to be the most widely used measure of consumer welfare change. Explain how this can be reconciled

  Depict von neumann-morgenstern utility index u in a diagram

Depict the von Neumann-Morgenstern utility index u in a diagram

  What is the market solution

What is the market solution (market price and quantity) and What is the total surplus of the society under the market solution

  Calculate gross national product and net national product

Calculate gross national product and net national product

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd