Explore BrainMass

Explore BrainMass

    Calculate actual payment given situation

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Steps to solve the following problem...
    You are a U.S. importer from France. You committed to paying ?100,000 to your French supplier on May 31. You decided to hedge against this foreign currency liability by entering long one euro futures contract. Unfortunately, the closest that you can come to May 31 is the JUN contract with June 23rd delivery. Having no other choice, you entered the JUN contract at the futures price of 1.5000 $/?.

    On May 31st you MUST deliver the euro. Because the JUN delivery is more than three weeks into the future, you purchase the needed euro on that date at the spot market for 1.6000 $/?. Since you delivered the euro, you do not need the futures contract anymore so you instruct your broker to reverse your position in the futures market. The broker comes back to you and informs you that she found counterparty at the futures price of 1.62.
    Requited: All in all, how much did you actually paid for the euro on May 31?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:48 pm ad1c9bdddf

    Solution Preview

    On 31st may we pay 1.6000 $/? to buy ?100,000 from the spot market by paying =$160,000
    We purchased the long euro ...

    Solution Summary

    This post shows how to calculate actual payment if she found counter party at the futures price of 1.62.