Suppose you are an importer of olive oil from Greece to the Switzerland. You are preparing to import an olive oil shipment of 100,000 lbs that will require payment in Euro () in 3 months. The payments exact amount will depend on both the CHF/ exchange rate, as well as the price for oil, which is a function of uncertain supply conditions in Greece. You project the following six scenarios with regards to the price of olive oil in 3 months:

Scenario Price (/lb of oil)

1 2.1

2 2.3

3 3.8

4 1.8

5 3.0

6 2.8

a) What can you do today if your goal is to completely hedge this -exposure?

b) Suppose that 3 months from now, scenario # 3 materializes. What will you do?