ExpertEasy2 marksShort Answer
ACCA · Question 18.3 · Risk Management
CASE 3: GLOBALBEAN CO
GlobalBean Co is a coffee exporter based in the US (reporting in USD). The company frequently sells coffee beans to European buyers, invoicing in Euros (EUR). GlobalBean expects to receive EUR 500,000 in three months. The company is concerned about foreign exchange risk and interest rate risk on a floating rate loan it holds.
GlobalBean decides to look at currency futures. The standard contract size for EUR futures is EUR 125,000. The tick size is 0.0001 USD/EUR.
Calculate the value of one tick per futures contract in USD.
(Enter your answer as a number to two decimal places, e.g., 10.50)
CASE 3: GLOBALBEAN CO
GlobalBean Co is a coffee exporter based in the US (reporting in USD). The company frequently sells coffee beans to European buyers, invoicing in Euros (EUR). GlobalBean expects to receive EUR 500,000 in three months. The company is concerned about foreign exchange risk and interest rate risk on a floating rate loan it holds.
GlobalBean decides to look at currency futures. The standard contract size for EUR futures is EUR 125,000. The tick size is 0.0001 USD/EUR.
Calculate the value of one tick per futures contract in USD.
(Enter your answer as a number to two decimal places, e.g., 10.50)
How to approach this question
Multiply the contract size by the tick size.
Full Answer
The tick value is the monetary value of the smallest possible price movement for one contract.
Tick value = Contract size × Tick size
Tick value = EUR 125,000 × 0.0001 USD/EUR = $12.50.
Common mistakes
Dividing instead of multiplying, or misplacing the decimal point.
Practice the full ACCA FM — Financial Management Practice Exam 3
32 questions · hints · full answers · grading
More questions from this exam
Q01A global wildlife conservation NGO, 'FaunaProtect', is evaluating its financial management object...EasyQ02A national government has recently implemented an expansionary monetary policy to stimulate the e...MediumQ03'CloudSync', a rapidly growing SaaS (Software as a Service) startup, is experiencing cash flow di...MediumQ04'AgriGrow', an organic fertilizer producer, uses 10,000 tonnes of raw compost annually. The cost ...EasyQ05'SteelForge Inc' is deciding between two heavy forging machines. Machine A has a life of 3 years ...Medium