You are a Swiss airline company. Tickets which you sell in the UK for scheduled flights all
Question:
You are a Swiss airline company. Tickets which you sell in the UK for scheduled flights all over Europe are sold in sterling. However, your competitors in this industry are European, not UK ones. If sterling weakens or strengthens, these competitors will ensure that the price of a ticket in the UK goes up or down in sterling terms to compensate partly for the weaker or stronger pound. You have analysed that a 10% fall (or rise) in sterling against all other currencies unilaterally would result in a 7% increase (or decrease)
in UK ticket prices in sterling terms, but no change in the volume of ticket sales. You have budgeted that your sales to the UK over the next 12 months will be GBP 100 million. You are worried that sterling will fall sharply, and wish to hedge against that risk. How much of what do you sell to hedge the risk?
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