Explain the futures hedge

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In February 2017, a British company contracted to import medical equipment from the United States and a payment of USD 800,000 was due on 15 June 2017. In February, the company obtained this information from its banker:

GBP/USD futures contract size : GBP 62,500

GBP/USD futures contract for June 2017 delivery : GBP1 = USD 1.2720

Spot rate : GBP1 = USD 1.2660

On 15 June 2017, the GBP/USD futures contract for June 2017 delivery was quoted at GBP1 = USD1.2860. Assume the company used the futures hedge. Explain the futures hedge and compute the company’s final payment (in its local currency) for its import on 15 June 2017. Explain if this hedge was effective.

Reference no: EM132219534

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