Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
A) Purchase a call option on francs.
B) Obtain a forward contract to purchase francs forward.
C) Sell a futures contract on francs.
D) All of these are appropriate strategies for the scenario described.

Question

Quizplus · Accepted Answer

Selling a futures contract on francs would not be an appropriate strategy for a U.S. firm that desires to avoid exchange rate risk because it would create an obligation to sell francs in the future at a predetermined exchange rate, leaving the firm vulnerable to losses if the exchange rate moves unfavorably. Purchasing a call option on francs or obtaining a forward contract to purchase francs forward would both provide protection against exchange rate risk.

Which of the Following Is the Most Unlikely Strategy for a U.S