a. How many contracts must you purchase to protect your portfolio from exchange rate risk? b. Suppose 1 month after you purchase the contracts, the exchange rate changes to $1 = £0.59. What is your profit/loss in USD?

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter5: Currency Derivatives
Section: Chapter Questions
Problem 41QA
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Suppose you own a portfolio of British securities valued at $430,000. The exchange rate is currently at $1= £0.57. A currency futures
contract on British pounds is set at 62,500 pounds.
a. How many contracts must you purchase to protect your portfolio from exchange rate risk?
b. Suppose 1 month after you purchase the contracts, the exchange rate changes to $1 = £0.59. What is your profit/loss in USD?
Transcribed Image Text:Suppose you own a portfolio of British securities valued at $430,000. The exchange rate is currently at $1= £0.57. A currency futures contract on British pounds is set at 62,500 pounds. a. How many contracts must you purchase to protect your portfolio from exchange rate risk? b. Suppose 1 month after you purchase the contracts, the exchange rate changes to $1 = £0.59. What is your profit/loss in USD?
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