Which is best futures contract to hedge accounts payable
Course:- Financial Management
Reference No.:- EM13942980

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Financial Management

You would like to hedge your accounts payable due one-year from now of Indian Rupees (IR) 10 million in the Futures market. But there are no Futures contract available on Indian Rupees. However, Futures contract on Singapore dollar (S$) and Hong Kong dollar (HK$) are available. On running regressions to observe their correlations, you found the following:

RIR = 0.05 + 1.1 x Rhk$ with R2 = 0.75

RIR = 0.04 + 1.3 x Rs$ with R2 = 0.90

Spot Rates for currencies are: $0.02/IR, $0.10/HK$, $0.40/S$. Contract Sizes: HK$200,000 S$50,000 a) Which is the best futures contract (HK$ or S$) to hedge your accounts payable of Indian Rupees with? b) How many futures contracts do you need? Do you go short or long?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin pa
Strategic Drivers. Be prepared to discuss one of the drivers in detail on the ways it is altering the way business is conducted. Locate one example of how a company has or has
Suppose the risk-free rate is 3.5 percent and the market portfolio has an expected return of 10.2 percent. The market portfolio has a variance of .0312. Portfolio Z has a corr
Atlantis Fisheries issues zero coupon bonds on the market at a price of $522 per bond. Each bond has a face value of $1,000 payable at maturity in 16 years. What is the yield
Minimizing Cruise Line Costs Deluxe River Cruises operates a fleet of river vessels. The fleet has two types of vessels: A type A vessel has 60 deluxe cabins and 160 standard
You can buy property today for $2.1 million and sell it in 6 years for $3.1 million. (You earn no rental income on the property.) If the interest rate is 11%, what is the pres
Suppose Alpha Industries and Omega Technology has identical assets that generate identical cash flows. Alpha Industries is an all-equity firm, with 10 million shares outstandi
Consider the expectations theory (of the term structure) with a term premium. What is the interest rate on a 5-year bond today if the term premium for a 5-year bond is 2% and