Gamma airlines is currently considering a) to fix the price for their future jet fuel purchases and b) fixing the exchange rate for their future international receipts. As a financial advisor of the firm, you have advised them: for the first (a) to buy a future on crude oil (cross-hedging) For the latter (b) you suggest a currency future. Assuming Gamma Airline is a USA based firm, and it receives and pay in $. Explain to the board of directors using the above scenarios as an example that: What are the costs of making a futures contract in terms of the settlement, delivery for both events if the price fell below the agreed price and rise above the and who guarantees the fulfilment of contracts?

Gamma airlines is currently considering a) to fix the price for their future jet fuel purchases and b) fixing the exchange rate for their future international receipts. As a financial advisor of the firm, you have advised them: for the first (a) to buy a future on crude oil (cross-hedging) For the latter (b) you suggest a currency future. Assuming Gamma Airline is a USA based firm, and it receives and pay in $. Explain to the board of directors using the above scenarios as an example that: What are the costs of making a futures contract in terms of the settlement, delivery for both events if the price fell below the agreed price and rise above the and who guarantees the fulfilment of contracts?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP2: Part 2: Exchange Rate Behavior

Section: Chapter Questions

Problem 1Q

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