2. Michelle Industries issued a Swiss franc–denominated 5-year discount note for SFr200 million.

The proceeds were converted to U.S. dollars to purchase capital equipment in the United States. The company wants to hedge this currency exposure and is considering the following alternatives:

• At-the-money Swiss franc call options.

• Swiss franc forwards.

• Swiss franc futures.

a. Contrast the essential characteristics of each of these three derivative instruments.

b. Evaluate the suitability of each in relation to Michelle’s hedging objective, including both advantages and disadvantages.