Explanation:
Since the company had a short position in futures contracts and the price of the futures contracts has decreased over the period of the hedge, the company has gained on its exposure in the futures contracts. The effective price obtained in cents per Lira is the final spot price plus the gain on the futures:
0.6150 + (0.6500 - 0.6250) = 0.6400
The total amount received by the German manufacturer for the 30 million Liras is 30,000,000 × 0.6400 cents = 19,200,000 cents or 192,000 Euros.
Q.634 A German electronic appliances manufacturer expects to receive 30 million Turkish Liras at the end of March. The Lira futures contracts on the Eurex Exchange are available for the delivery months of March, June, September, and December. The size of one contract is 10 million Turkish Liras. The company shorts three June contracts on February 1 with the futures price of 0.6500 cents per Lira. If the futures prices and spot price on the closing date are 0.6250 and 0.6150, respectively, then calculate the effective price received in Euros for 30 million Liras.
A
The effective price is Euro 10,500.
B
The effective price is Euro 192,000.
C
The effective price is Euro 187,500.
D
The effective price is Euro 184,500.
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