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/pound Period Rate Spot 1.5342 March 1.6212 June 1.6901 September 1.7549 December 1.8416 The customer enters into a position in June futures to fully hedge her position. When June​ arrives, the actual exchange rate is ​$1.7311.731 per pound. How much did she​ save? ​$nothing. ​(Round your response to the nearest whole​ number.)

Answer 1

Answer:

$4,100

Explanation:

The computation of the saving would be

= Purchase of new inventory × (Actual exchange rate in June - exchange rate in June)

= £100,000 × ($1.7311 - 1.6901)

= £100,000 × 0.041

= $4,100

We assume that the actual exchange rate is $1.7311, not the $1.7311.731

For computing the savings, we deduct the actual exchange rate and the exchange rate for the June month and then multiply it by the purchase of new inventory so that the accurate value can come.