Schweser vol2 exam 1 am Qn 11 - currency overlay manager

The $ portfolio manager wants €1B. eu bond market but avoid translation risk and considering options, Qn is about option to “hedge with futures contracts”


spot: $1.30/€

euro futures contract

contract size €125,000

contract price: $1.28/€

expiration in nine months

qn: calculate the number of contracts required to initiate the strategy

i am not sure if the hedge ratio should be 1.0 especially given the difference between futures and spot prices. Can some1 pls help

Why wouldn’t it be 1? Your realized local return is known beforehand.