What position would you take to hedge yourself

Assignment Help Financial Management

Reference no: EM132038094

You are an importer with a contract to buy 40,000,000 bars of famous Utopian TastesGreat chocolate for a fixed price of 20 Utopian Liras (UTL) each. The current futures price is $0.16/UTL, and the contract specifies delivery of 62,500 UTLs per contact. Assume you can take fractional futures positions if you need to. The exchange rate when you buy the goods will be either $0.18 (with probability 2/3) or $0.15 (with probability 1/3). What position would you take to hedge yourself? Long or short, and how many contracts? Show your resulting total costs (including the futures position) when the exchange rate is $0.18 and when it is $0.15.

Reference no: EM132038094

Questions Cloud

Brief plan on how that company could improve : Choose a business, either one you work at or a local one, and come up with a brief plan on how that company could improve it's sustainability

What is the initial investment outlay for spectrometer : What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow?

What makes productivity an essential managerial tool : What makes productivity an essential managerial tool in helping track the progress toward the more effective adoption of resources in generating goods

Organization or the management of technology : What is more important: the management of the human element of the organization or the management of technology?

What position would you take to hedge yourself : What position would you take to hedge yourself? Long or short, and how many contracts?

Decision-making using reference points : Give an example of your decision-making using reference points. This is the most common mistake people make, so try to discuss how you can improve.

Implied powers in making public policy : Based on the American "constitution," which internal and external stakeholders, in the policy making process, possess "constitutional legitimacy"

Prepare the journal entries needed on the book : On April 1, 2014, Seminole Company sold 33,300 of its 11%, Prepare the journal entries needed on the books of Seminole Company

Define components of effective performance appraisal system : What are the principal components of an effective performance appraisal system? How can a performance appraisal system effectively address employee-related.

User Account

All Pages