22-115 If the current (spot)rate for one-year British pound futures is currently at $1.58/£ and each contract size is £62,500,how many contracts are required to be purchased or sold in order to fully hedge against the pound exposure? (Assume no basis risk).
A)Sell 1,600 BP futures.
B)Buy 1,600 BP futures.
C)Sell 1,712 BP futures.
D)Buy 2,560 BP futures.
E)Buy 1,712 BP futures.

Question

Quizplus · Accepted Answer

To fully hedge against the pound exposure, you need to calculate the total exposure in pounds and then determine how many futures contracts are needed. If the exposure is £107,000,000, dividing by the contract size (£62,500) gives approximately 1,712 contracts. Therefore, you would buy 1,712 BP futures.

22-115 If the Current (Spot)rate for One-Year British Pound Futures