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. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started