Suppose you are the risk manager of a Swiss beer exporter that regularly sells in the United States. The mission of your department is to minimize currency exposure, using currency futures and currency options.

On the 18th of September, 2021, you received a purchase order for 50,000 barrels of beer from a U.S. wholesaler at a wholesale price of US$28.75 per barrel. The U.S. wholesaler agreed to pay on the 28th of October, 2021.

Assume it is now October 28, 2021, and you have just received the payment from your U.S. wholesaler. Use the attached exchange rates and prices of financial instruments to answer the following questions.

1. With hindsight, and for this specific example, was hedging with options better or worse than hedging with futures? Explain your answer. Would your answer change if in the future your goal is to hedge every single currency exposure as closely as possible while minimizing your costs?

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H I . B E F G 2 3 Wall Street Journal - September 19, 2021 4 Exchange Rates 5 Wednesday, September 18, 2021 6 7 U.S.$ equiv. Currency per U.S.$ 8 Country Wed Tue Wed Tue 9 Switzerland (Franc) 1.1232 1.1227 0.8904 0.8907 10 30-Day Forward 1.1290 1.1251 0.8858 0.8888 11 90-Day Forward 1.1332 1.1297 0.8821 0.8852 12 180-Day Forward 1.1416 1.1373 0.8761 0.8792 13 14 Options 15 Philadelphia Exchange 16 Swiss Franc 112.32 17 62,500 Swiss Francs - cents per unit 18 Calls Puts 19 Vol. Last Vol. Last 20 110 Dec 178 3.11 21 111 Oct 120 0.27 22 111 Dec 56 2.77 23 112 Oct 0.48 24 112 Nov 1.11 25 112 Dec 1.11 26 113 Oct 11 0.85 27 113 Dec 15 1.62 28 114 Oct 127 0.49 29 114 Nov 38 1.77 30 116 Dec 61 3.28 Pge 119 I.. II. ... I.. 21 Exchange Rates 3 Sheet1 Open Interest 47,301 1,583 450 III A B E F G H 34 Futures Prices 35 36 Swiss Franc (CME) 125,000 francs; $ per franc 37 Lifetime 38 Open High Low Settle Change High Low 39 Dec 2021 1.1298 1.1371 1.1283 1.1332 +0.0015 1.2019 1.1113 40 Mar 2022 1.1426 1.1441 1.1405 1.1409 +0.0015 1.1793 1.1276 41 Jun 2022 +0.0015 1.1810 1.1373 42 Est. vol. 35,556, vol. Tu 18,620 43 44 45 46 47 Wall Street Journal - October 29, 2021 48 49 Exchange Rates 50 Monday, October 28, 2021 51 52 U.S.$ equiv. Currency per U.S.$ 53 Country Mon Fri Mon Fri 54 Switzerland (Franc) 1.1189 1.1179 0.8937 0.8945 55 30-Day Forward 1.1210 1.1200 0.8921 0.8928 56 90-Day Forward 1.1256 1.1246 0.8885 0.8893 57 180-Day Forward 1.1324 1.1312 0.8831 0.8840 58 H Page III 2 ... A B D E F 60 61 Options 62 Philadelphia Exchange 63 64 Swiss Franc 111.89 65 62,500 Swiss Francs-cents per unit 66 Calls 67 Vol. Last Vol. Last 68 109 Nov 53 0.07 69 110 Nov 78 0.12 70 111 Dec 46 2.26 71 111 Nov 41 1.00 72 112 Nov 22 0.58 73 74 Futures Prices 75 76 Swiss Franc (CME) 125,000 francs; $ per franc 77 78 Open High Low Settle Change 79 Dec 2021 1.1200 1.1242 1.1178 1.1222 +0.0007 80 Mar 2022 1.1261 1.1305 1.1261 1.1290' +0.0007 81 Jun 2022 1.1370 1.1373 1.1365 1.1359 +0.0007 82 Est. vol. 13,446, vol. Fr 21,774 83 84 85 86 Lifetime High Low 1.2019 1.1040 1.1793 1.1113 1.1810 1.1188 Open Interest 67,124 5,471 4,267 H I . B E F G 2 3 Wall Street Journal - September 19, 2021 4 Exchange Rates 5 Wednesday, September 18, 2021 6 7 U.S.$ equiv. Currency per U.S.$ 8 Country Wed Tue Wed Tue 9 Switzerland (Franc) 1.1232 1.1227 0.8904 0.8907 10 30-Day Forward 1.1290 1.1251 0.8858 0.8888 11 90-Day Forward 1.1332 1.1297 0.8821 0.8852 12 180-Day Forward 1.1416 1.1373 0.8761 0.8792 13 14 Options 15 Philadelphia Exchange 16 Swiss Franc 112.32 17 62,500 Swiss Francs - cents per unit 18 Calls Puts 19 Vol. Last Vol. Last 20 110 Dec 178 3.11 21 111 Oct 120 0.27 22 111 Dec 56 2.77 23 112 Oct 0.48 24 112 Nov 1.11 25 112 Dec 1.11 26 113 Oct 11 0.85 27 113 Dec 15 1.62 28 114 Oct 127 0.49 29 114 Nov 38 1.77 30 116 Dec 61 3.28 Pge 119 I.. II. ... I.. 21 Exchange Rates 3 Sheet1 Open Interest 47,301 1,583 450 III A B E F G H 34 Futures Prices 35 36 Swiss Franc (CME) 125,000 francs; $ per franc 37 Lifetime 38 Open High Low Settle Change High Low 39 Dec 2021 1.1298 1.1371 1.1283 1.1332 +0.0015 1.2019 1.1113 40 Mar 2022 1.1426 1.1441 1.1405 1.1409 +0.0015 1.1793 1.1276 41 Jun 2022 +0.0015 1.1810 1.1373 42 Est. vol. 35,556, vol. Tu 18,620 43 44 45 46 47 Wall Street Journal - October 29, 2021 48 49 Exchange Rates 50 Monday, October 28, 2021 51 52 U.S.$ equiv. Currency per U.S.$ 53 Country Mon Fri Mon Fri 54 Switzerland (Franc) 1.1189 1.1179 0.8937 0.8945 55 30-Day Forward 1.1210 1.1200 0.8921 0.8928 56 90-Day Forward 1.1256 1.1246 0.8885 0.8893 57 180-Day Forward 1.1324 1.1312 0.8831 0.8840 58 H Page III 2 ... A B D E F 60 61 Options 62 Philadelphia Exchange 63 64 Swiss Franc 111.89 65 62,500 Swiss Francs-cents per unit 66 Calls 67 Vol. Last Vol. Last 68 109 Nov 53 0.07 69 110 Nov 78 0.12 70 111 Dec 46 2.26 71 111 Nov 41 1.00 72 112 Nov 22 0.58 73 74 Futures Prices 75 76 Swiss Franc (CME) 125,000 francs; $ per franc 77 78 Open High Low Settle Change 79 Dec 2021 1.1200 1.1242 1.1178 1.1222 +0.0007 80 Mar 2022 1.1261 1.1305 1.1261 1.1290' +0.0007 81 Jun 2022 1.1370 1.1373 1.1365 1.1359 +0.0007 82 Est. vol. 13,446, vol. Fr 21,774 83 84 85 86 Lifetime High Low 1.2019 1.1040 1.1793 1.1113 1.1810 1.1188 Open Interest 67,124 5,471 4,267