What net amount would be needed to fund the loan

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Reference no: EM133264458

Question: An American Financial Institution has made a loan commitment of €10,000,000 to a client which is likely to be taken down in 6 months. The current spot exchange rate is $1.50/€.

Is the FI exposed to a dollar depreciation or appreciation?
If the spot rate six months from today is $1.6/€, what amount of dollars is needed if the loan is taken down and the FI is not hedged?
If it decides to hedge using € futures, should the FI buy or sell € futures?
A six month € futures contract is available for $1.53/€.
What net amount would be needed to fund the loan at the end of six months if the FI had hedged using the €10 million futures contract?

Assume that the futures prices are equal to the spot prices at the time of payment.

Reference no: EM133264458

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