Reference no: EM131915107

You are a U.S. based exporter that has just secured a 3 year contract that will provide one million British pounds for each of the next three years, receivable at the end of each year. In order to fulfill this contract, you need to purchase supplies from Thailand that cost 500,000 Baht each year. As well, you’ve booked an order that will secure you 2 million Euros for each of the next seven years, but this particular order is only renewable each year (in other words, you don’t necessarily know that you’ll continue receiving these cash flows for each of the next 4 years). Lastly, you’ve booked a sale that brings in 300,000 Baht for each of the next 2 years (this contract, like the one in British Pounds, can be relied upon for each of those years).

Discuss, calculate, and analyze by using a futures market hedge to hedge these cash flows. Please explain.