Problem:
On January 10, Volkswagen agrees to import auto parts worth $7 million from the U.S. The parts will be delivered on March 4 and are payable immediately in dollars. VW decides to hedge its dollar position by entering into IMM futures contracts. The spot rate is $1.3447/€ and the March futures price is $1.3502.
Required:
Question: Calculate the number of futures contracts that VW must buy or sell to offset its dollar exchange risk on the parts contract if each contract is worth €125,000.
Note: Show supporting computations in good form.