Question

A bank customer will be going to London in June to purchase​ £100,000 in new inventory. The current spot and futures exchange rates are as​ follows: Exchange Rates ​dollars/poundCol1 = Period, Spot, March, June, September, December Col2 = Rate, 1.5342, 1.6212, 1.6901, 1.7549, 1.8416 The customer enters into a position in June futures to fully hedge her position. When June​ arrives, the actual exchange rate is ​$1.7311.731 per pound. How much did she​ save?

Answer 1

$4,107.31

Step-by-step explanation:

Data provided in the question:

Amount of inventory to be purchased = £100,000

current spot and futures exchange rates

Period Rate

Spot 1.5342

March 1.6212

June 1.6901

September 1.7549

December 1.8416

-----------------------------------

Actual exchange rate = $1.7311.731 per pound

Now,

considering the exchange rate of June

The actual exchange rate is higher than the future exchange rate earlier

therefore,

There will be gain in exchange amount

Thus,

The amount saved by her = Amount × (Gain in exchange in rate)

= £100,000 × (1.7311.731 - 1.6901 )

= 100,000 × 0.0410731

= $4,107.31