Question:
A bank customer will be going to London in June to purchase $100,000 in new inventory. The current spot and futures exchange rates are as follows:
Exchange Rates (Dollars/Pound)
Period Rate
Spot 1.5342
March 1.6212
June 1.6901
September 1.7549
December 1.8416
The customer enters into a position in June futures to fully hedge her position. When June arrives, the actual exchange rate is $1.725 per pound. How much did she save?