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Currency risk management

Example 7

Step 3

Initially Sell at 1.3076

Close out: Buy at 1.3150

Difference -0.0074

USD 0.0074 per GBP1 loss

61 × £62,500 × $0.0074 = USD28,213 loss

Settle transaction

Pay supplier ($5,000,000)

Margin returned $61,000

Loss on contract ($28,213)

Total ($4,967,213)

Convert @ spot 1.3100 (£3,791,766)

Margin paid (£46,995)

Transaction value (£3,838,761)

Note: a question this detailed is unlikely but it shows the various stages which
could all be tested individually.

Illustrations and further practice

Look at the illustration in chapter 12 on futures and try TYU 20 and 21

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