It is June 14, and the US firm for which you work will receive SF1,000,000 on July 12. To hedge the foreign exchange risk faced by the firm, you can take a position in SF futures which trade in sizes of SF125,000 per contract and mature on Sept 17. The current spot and futures exchange rates are S=$.8980/SF and F=$.9315/SF. Suppose on July 12 the spot and futures prices are S=$.8775/SF and F=$.9150/SF.

a. What risk do you face?

b. How you would hedge against this risk include all of the trades you would make and the date you would make them

c. What will your net dollar cash flow be on July 12 if you hedge?

d. If on July 12, S=$.9130/SF and F=$.9465/SF, what is your net dollar cash flow if you hedge?