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Today is May 2, and Bid and Ask are $1.2100/E and $1.2300/E. The August 21 and September 20 futures contracts are priced at is $1.2500 and $1.2600 respectively. Each contract controls 100,000E. You are receiving 418,000E in Euro revenues on September 9th. Assume that currently, the September 9th forward is $1.2560.
How would you properly hedge the revenues using futures contracts? Discuss why, how much you will be over or under-hedged, and the risks.a. Buy 3 August Euro-futures contractsb. Sell 3 August Euro-futures contractsc. Sell 4 September Euro-futures contractsd. Buy 4 September Euro-futures contractse. Sell 3 September Euro-futures contracts
If we properly hedge the above revenue, are we over-hedged or under-hedged, and what will cause the hedge to lose money? Explain why.a. Over-hedged, an appreciation of the Euro relative to the forwardb. Over-hedged, a depreciation of the Euro relative to the forwardc. Under-hedged, an appreciation of the Euro relative to the forwardd. Under-hedged, a depreciation of the Euro relative to the forwarde. Nothing, the hedge will work perfectly
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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