Calculate the total amount of dollars

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A US firm has a project in France. The project will yield the following Cash flows: EUR 6 million in 5 months and EUR6 million in 11 months. The  firm decides to exchange the euros into USD as soon as the cash flows occur and is interested in hedging its spot exchange rate risk; the current spot rate is USD1.1000/EUR; the 6-month futures rate is USD1.1250/EUR and the 12-month futures price is USD 1.1345/EUR. There are 125,000 euros in one Euro futures.

Use a time table to show the hedge the firm opens now, t, and the transactions taken by the firm 5 months and 11 months from t, given that the spot rates on those dates were USD1.2000/EUR and USD1.3500EUR, respectively, while the 1-month futures 5 months from t were USD1.0500/EUR and the 1-month futures 11 month from t were USD1.0800/EUR.

Calculate the total amount of dollars that were deposited by the firm in its account is NYC.

Reference no: EM132689573

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