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# Unit Costs of EUROs and USDs

A US importer is concerned about the appreciation of Euro against USD due to Euro payables of EUR10,000,000 in three months. To hedge (protect himself/herself) the position, exporter decides to use futures markets. Currently, CME (Chicago Mercantile Exchange) EURO contracts (125,000 each) are traded at USD1.0814. The spot rate is EUR/USD1.0751-0756 (USDs per EURO). Suppose the exporter takes an equal futures position to its cash market position (EUR10m) at \$1.0814. Provided that futures contract price and spot rates are \$1.1250/Euro and \$1.0935/Euro respectively when the hedge is liquidated, what should be the unit cost of EURO for the US importer in USD terms.

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Costs of futures = (EUR10,000,000 ...

#### Solution Summary

The following problem helps with calculations for cost of futures, proceeds at hedge liquidation and unit costs. Step by step calculations are given for each problem.

\$2.19