For this and the next question. A Chicago merchant plans to import a shipment of
ID: 2779383 • Letter: F
Question
For this and the next question. A Chicago merchant plans to import a shipment of materials from France costing 1,000,000. Spot exchange rate is $1.28. To hedge against a rise in the value of the euro, the merchant buys euro futures at a futures price of $1.32. Contract size is 125,000. Calculate the hedge ratio, keeping in mind that fractional contracts are not traded.
About 8 contracts
About 9 contracts
About 10 contracts
None of the above
About 8 contracts
About 9 contracts
About 10 contracts
None of the above
Explanation / Answer
Hedge ratio = value of contract/ contract size
= 1,000,000/ 125,000
= 8 contracts