1. If an FI has to hedge a $5 million liability exposure in Swiss francs (Sf), what options should it purchase to hedge this position? Using Figure 24–13 , how many contracts of Swiss franc futures options should it purchase (assuming no basis risk) if it wants to hedge against the Sf falling in value against the dollar given a current exchange rate of

$0.8185/Sf1 (or 1.2217 Sf/$1). (Buy 48.810 call options on Sf futures)