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Suppose your corporation is planning to purchase wheat from…

Suppose your corporation is planning to purchase wheat from New Zealand for NZD 78 million in 18 months’ time.  Assume the current spot rate for the New Zealand Dollar is $0.5822 per NZD. Based on the table above, please answer the following questions…   Part I – For this two-part question, please ignore the effects of margin (ie. collateral). 1) How should you hedge your exposure using futures contracts?  [a] 2) What is the initial nominal exposure (in USD terms) of your futures contract position?  [b] 3) If six months later the spot rate for NZD is $0.5828 and your NZD futures contract is trading at $0.5790, how much has been credited/(debited) from your futures account?  [c]

Suppose your corporation is planning to purchase wheat from…

Suppose your corporation is planning to purchase wheat from New Zealand for NZD 78 million in 18 months’ time.  Assume the current spot rate for the New Zealand Dollar is $0.5822 per NZD. Based on the table above, please answer the following questions…   Part II – Assume in 18 months the New Zealand dollar settles at $0.5710 cents per NZD….  4) If you execute your futures position and accept delivery of NZD 78 million, what would be your GROSS cost (ie. before hedging gains or losses)?  [a] 5) What is the total gain/(loss) on your futures hedging position?  [b] 6) What is the net effective cost of your NZD 78 million (including hedging gains or losses)?  [c] For this question, please ignore the effects of margin requirements (covered in next question).