Question
Your firm is an Italian importer of bicycles. You have placed an order with a Swiss firm for SFr. 2,000,000 worth of bicycles. Payment (in
Your firm is an Italian importer of bicycles. You have placed an order with a Swiss firm for SFr. 2,000,000 worth of bicycles. Payment (in francs) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity. 12-months Forward British Pound Contracts ()10,000 = ($/)2.0000
12-months Forward Euros Contracts ()10,000 =($/) 1.6000
12-months Forward Swiss Francs Contracts (SFr)10,000 = ($/SFr)=1.0000.
a. | Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts. |
b. | Go short 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contracts. |
c. | Go long 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contracts. |
d. | Go short 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts. |
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