You work at the Treasury department of XYZ Corporation (your group will be assigned a firm). You
oversee XYZ’s FX risk management. XYZ has an account receivable of C$23,358,500 due on Wednesday,
March 28, 2018. You are concerned with the potential depreciation of C$ value vs. $ and want to hedge
the position. You always consider the following hedging strategies to manage the FX exposure:
- Futures (CME)
- Options (Philadelphia Stock Exchange)
- Money market
- Combination of Forward and Options
- You will sell April maturing Canadian dollar futures contracts on Friday, February 9, 2018 at the
February 9, 2018 opening price. Record February 9 opening price and each day’s settlement price from
February 9 through February 15.
- If there are margin calls, you will come up with the necessary cash to bring your account back to the
initial margin. If the account balance goes above the initial margin, you will leave the entire amount in
the account. Funds in the account will not earn any interest.
Assignment: Forecast the March 28, 2018 spot exchange rate for your currency. Provide a one to two-page (≈ 450
to 500 words) defense for your forecast.
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