Currency futures – No. of contracts required

Hi John,

Relevant information:
Transaction type: A foreign currency payment $12,750,000 in May (local currency in EUR)
Spot price at 28-Feb: 1.2311
Futures contract: Mar at 1.2774, Jun at 1.2143, contract size EUR62,500

Using the ‘long method’, I found out that when calculating no. of contracts required, Kaplan study text, Kaplan exam kit and BPP workbook gives different approach, mainly:

1) Using predicted futures price at transaction date in May (Kaplan exam kit = past exams)
= [ $12,750,000 / (1.2143 + ((1.2311 – 1.2143) x ¼ x 1 period) ) ] / EUR62,500
= 167.41 or 167 contracts (under-hedged exist)

2) Use directly the futures contract rate at maturity in Jun (In study text/workbook)
= [ $12,750,000 / 1.2143 ] / EUR62,500 = 167.998, or 168 contracts (no under-hedged)

Though the difference is minimal, it is really confusing (+frustrating) because none of the study material clarify if it is acceptable in the exam to use any one of the two approaches (of course I will choose to follow exam kit as the answer is written by examiner). Please kindly advice.

Furthermore, is it acceptable to ‘round up’ the no. of contracts required (i.e. the 167.41 contracts above to 168 contracts) to save the hassle of going through the amount not hedged?

Looking forward for your reply and thanks in-advance!

Best regards,
Kenny