2) Suppose you receive 2,500,000 British Pounds (not Euros) today and plan to co

Question

2)

Suppose you receive 2,500,000 British Pounds (not Euros) today and plan to convert into US dollars early next February. Which is the correct action to take today in order to hedge against GBP exchange rate risk?

Short 20 British Pounds futures contracts expiring in February

Long 20 British Pounds futures contracts expiring in March

Short 40 British Pounds futures contracts expiring in March

Long 40 British Pounds futures contracts expiring in February

Short 20 British Pounds futures contracts expiring in February

Long 20 British Pounds futures contracts expiring in March

Short 40 British Pounds futures contracts expiring in March

Long 40 British Pounds futures contracts expiring in February

Explanation / Answer

Long 40 British Pounds futures contracts expiring in February

As we have to pay amount after a month i.e. in february then it is better to Going long i.e.purchase so that after selling futures we can pay 2500000 British pounds.

Long 40 British Pounds futures contracts expiring in February

As we have to pay amount after a month i.e. in february then it is better to Going long i.e.purchase so that after selling futures we can pay 2500000 British pounds.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.