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Imagine you are the treasurer of a Chinese company exporting electronic equipment assembled in China to the United States, you are expecting to receive a

Imagine you are the treasurer of a Chinese company exporting electronic equipment assembled in China to the United States, you are expecting to receive a payment from your clients in USD in 3 months, and you are considering hedging this foreign exchange rate risk.

a.Explain the impact on the profit of the company should CNY depreciate against USD.

b.How would you hedging the risk using

i) forward and futures contracts or

ii) using options

Which hedging method would you chose and why?

c.After you have put on the hedge in b), assumed it is now 1 month to the payment date and your view is that the USDCNY FX rate has reached its lowest point, list 2 different ways that you can immediately realize the gain from your hedge in b.)

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