Question

 

a)      Mwenyeji Importers Ltd, a company based in Kenya, has been a regular importer of goods from the United States of America (USA).  The Kenyan currency is the Shilling (Sh.) while the USA currency is the dollar ($).

 

On 1 June 2016, Mweyeji Ltd imported a consignment of goods from a supplier in the USA.  The consignment cost $1,000 and was payable on 1 September 2016.

The spot rates on 1 June and 1 September 2016 were as follows:

	$/Sh.
1 June	0.007
1 September	0.006

 

In September 2016 shilling futures were trading at $0.00625/Sh (contract size Sh.1, 194,000) as at 1 June 2016.

Required:

     i).            Show how Mwenyeji Ltd could have used a futures contract as a hedging tool, indicating any hedging profit or loss.                                    (6 Marks)                                                                           

 

 

 

   ii).            How many futures contracts would Mwenyeji Ltd. have purchased if the contract size was Sh.2 million?                                                                                                 

(2 Marks)