Hedging - selecting the correct futures hedge
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1. You are a US company with a customer that is going to pay you 10,000 Euros in 6 months. The correct futures hedge for this situation is to enter into a contract in which you buy Euros (True or False)
2. You are a US company that needs to pay a vendor 10,000 Euros 6 months from now. One option to hedge against foreign currency exchange risk might be to purchase Euros now (True or False).
3. You are a US company that needs to pay a vendor 10,000 in Euros 6 months from now. One option to hedge against foreign exchange risk might be to enter into the sell Euros via a futures contract (true or false)
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Solution Summary
This posting shows the correct futures hedge under three different situations to enter into a contract in which you buy Euros.
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1. You are a US company with a customer that is going to pay you 10,000 Euros in 6 months. The correct futures hedge for this situation is to enter into a contract in which you buy Euros (True or False)
Answer: False
I will receive 10,000 Euro at the end of 6 months, so I would be selling them. So I should enter into a contract to sell Euro. I can sell them now in futures market and can reduce the risk of depreciation of ...
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