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Sir, i’m confused why in Washi Co and Lirio Co(M/J 16), the expected receipt for future contract is calculated by multiplying with no. of contract with contract size and the respective exchange rate.
But in Casasophia (june 11), the expected receipt for future contract does not include the no. of contract and contract size.
Kindly guide me sir. 🙂
If for Lirio Co i answer like this for currency future contract;
expected receipt = 185 contract x $125 000 = $23 125 000
the answer given is euro 20 000 000/0.8650 =$23121387
It should be done the way you have written it (185 contracts etc.) and then use forward rate on the amount over-hedged, and that would get full marks (as the examiner has written in his answer).
The reason he didn’t bother doing it is, as he has written, that it so close to 185 contracts that the difference (of less than $4,000 out of $23 million) is immaterial.Ohh i got it.
Sorry sir the reply appears two times again. i post it once but it didnt appear eventhough i refresh the page.
Thank you so much sir 🙂
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