Could someone help out with this ?

[ajorge]

Using the following information, prepare starting BS, ending BS and P&L statement.

Starting Balance Sheet

$1,000,000 Cash

100,000 shares of StockCo at $10 / share

$500,000 Debt

100,000 shares of BritCo at GBP 10 / share

1 GBP = $1.80

Activity

Buy 100,000 shares of NewCo at $5 / share, using 50% margin.

StockCo share price = $12

BritCo share price = GBP 8

1 GBP = $1.82

Question
If a GBP future contract is GBP 62,500, how many contracts would you need to hedge your GBP exposure on the ending BS?

Using the following information, prepare starting BS, ending BS and P&L statement.

Starting Balance Sheet
$1,000,000 Cash
100,000 shares of StockCo at $10 / share
$500,000 Debt
100,000 shares of BritCo at GBP 10 / share
1 GBP = $1.80

Activity
Buy 100,000 shares of NewCo at $5 / share, using 50% margin.
StockCo share price = $12
BritCo share price = GBP 8
1 GBP = $1.82
Question
If a GBP future contract is GBP 62,500, how many contracts would you need to hedge your GBP exposure on the ending BS?

I have an idea on how to go about it, however, im not sure if im right...this is what i came up with


First I made the assumption that all investments were considered trading securities

Beginning BS

Cash
$1,000,000
Investments
$2,800,000:
$1,000,000 – 100,000 shares stockCo @ $10/s
$1,800,000 – 100,000 shares BritCo(FC)
(100,000 x 10 GBP = GBP 1,000,000 x 1.8)

Liabilities
Debt
$500,000

SE
3,300,000


Ending BS

Cash
$750,000

Investments
$3,156,000

$1,200,000 – 100,000 shares stockCo @ $12/s

$1,456,000 - 100,000 shares BritCo(FC)
(100,000 x 8 GBP = GBP 800,000 x 1.82)

$500,000 – 100,000 shares NewCo @ $5
(50% margin)


Debt
$750,000:
$500,000
$250,000 – Margin payable (50% margin on acquisition of NewCo stock)***

SE
$3,156,000


***Unsure about margin payable
If a GBP future contract is GBP 62,500, how many contracts would you need to hedge your GBP exposure on the ending BS?

You would need to hedge GB 1,000,000(100,000 shares @ GBP 10/s); therefore 16 contracts would be needed to hedge the risk (1,000,000/62,500).


As for the P & L the only thing I could come up with are the following:
Cash

($250,000) acquisition of 100,000 shares of NewCo 50% margin
250,000 (payable- loan for the margin purchase of NewCo stock)

Investing activities
Unrealized holding gain of $200,000 on StockCo
(Increase of market price from $10 to $12)

Unrealized holding loss of ($344,000)
Exchange loss of ($16,000) - (1.82-1.80=.02, .02 X 800,000 = 16,000)
` ($360,000)

Any help would be greatly appreciated!