1.An FI has made a loan commitment of SF10 million that is likely to be taken down in six months. The current spot rate is $0.60/SF.

Is the FI exposed to the dollar depreciating or the dollar appreciating? Why?

If it decides to hedge using SF futures, should it buy or sell SF futures?

If the spot rate six months from today is $0.64/SF, what dollar amount is needed in six months if the loan is drawn down?

A six-month SF futures contract is available for $0.61/SF. What is the net amount needed at the end of six months if the FI had hedged using the SF10 million of futures contract? Assume futures prices are equal to spot at the time of payment, that is, at maturity.

If it decides to use options to hedge, should it purchase call or put options?

Call and put options with an exercise price of $0.61/SF are selling for $0.02 and $0.03, respectively. What is the net amount needed by the FI at the end of six months if it had used options instead of futures to hedge this exposure? LO 13.8