Suppose you work for a US corporation that has operations in Mexico.
Suppose you work for a US corporation that has operations in Mexico. Every year, your profits from Mexico are brought back to the US. This involves a currency exchange from Mexican Peso to US Dollar. Considering the recent election, you’re worried that the Mexican Peso might worsen with respect to the US Dollar. You want to make sure that you’re hedged against this risk.a. You expect profits next year to amount to 15 Million Pesos. What position in Futures contracts would you take to hedge against exchange rate moves? The futures price for a contract expiring in November 2017 is 0.04617 USD/Peso. The spot price is 0.049 USD/Peso.b. Suppose at the time of expiration, the value of the Peso is worse than expected and the spot price drops to 0.045 Peso/USD. What is the value of your futures contract position?
