General Electric recently had to put together a $50-million bid, denominated in Swiss francs, to upgrade a Swiss power plant. If it won, GE expected to pay subcontractors and suppliers in five currencies. The payment schedule for the contract stretched over a five-year period.
a. How should General Electric establish the Swiss franc price of its $50-million bid?
b. What exposure does GE face on this bid? How can it hedge that exposure?