On June 15, a US firm is planning to import Mexican caviar worth Pesos 2 milliondue on July 15 (one month later). The firm decides to hedge its payables position by using September peso futures. The spot rate on June 15 is US$ 0.0630 / peso and the September futures price on June 15 is at $0.0665 per peso. One month late on July 15, the spot rate is $0.0570 / peso while the September futures price is $0.0615 / peso. Assume contract size is 2 million pesos.
What is the gain or loss from the futures hedge:
We can calculate the gain loss from the future hedge as follows
As the US firm is importing the goods it will have to pay for the value in US dollars
Contract Size = 2,000,000 peso
Spot rate on 15 July = $ 0.0570/ peso
September future price on July 15 = $ 0.0615/ peso
Difference in Spot and Future rate = ( September future price on July 15 - Spot rate on 15 July )
= ( 0.0615 - 0.0570 )
= $ 0.045/ peso
This means that the firm will have to pay additional $ 0.045/ peso for the future contract which is a loss for the US firm
Total Loss = Difference in Spot and Future rate * Contract size
= 0.045 * 2,000,000
= $ 9,000
So, the firm has to bear loss of $ 9,000 due to future contract.
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