A Company will receive 250,000 (GBP) in June. They are debating whether to enter into a three months future contract or do a synthetic forward. If the company decides to use futures contracts, how many contracts do they need to use?
In order to decide the best option, you need to find the value of the June futures for British Pounds the spot exchange rate for British Pounds, and the yield of the three month U.S. Treasury bill. The three month Treasury bill issued by the Bank of England has a yield of 0.45 Percent per year.
Another company has to pay 25 million Japanese Yen in June. Should they enter into futures contract for June or do a synthetic forward? If it is best to use Futures contracts, How many contracts should they use?
In order to decide what is best you need the June futures for Japanese Yen, the spot exchange rate for Japanese Yen, and the yield of the three month U.S. Treasury bill. The three month Treasury bill issued by the Bank of Japan has a 0.00846 percent per year.
The Futures contracts settlements prices are in the CME Daily Bulletin (PG07), the spot rates in Oanda, and the U.S. Treasury bill yields in the Treasury Department or Yahoo Finance.
Present a report with your calculation for both cases and the recommendations on what is the cheapest option for each of the cases.