How many contracts should financial manager take to hedge


Problem:

In March, a U.S. financial institution manager is expecting to receive 10 million in Euros in June on a loan, and wants to hedge against a fall in the value of the Euro when she needs to convert the Euros to U.S. dollars in June. On this date, spot exchange rate of one Euro = $1.3085 (U.S. dollars). The CME currency future settle rate for Euro currency futures contacts is for 1 Euro= $ 1.3070 (U.S. dollars), with the minimum contract of 125,000 Euros.

a. What position and how many contracts should the financial manager take to hedge against a fall in the Euro?

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Finance Basics: How many contracts should financial manager take to hedge
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