A U.S. firm is bidding for a project needed by the Swiss government. The firm will not know if the bid is accepted until three months from now. The firm will need Swiss francs to cover expenses but will be paid by the Swiss government in dollars if it is hired for the project. The firm can best insulate itself against exchange rate exposure by:
A) selling futures in francs.
B) buying futures in francs.
C) buying franc put options.
D) buying franc call options.

Question

​A U.S. firm is bidding for a project needed by the Swiss government. The firm will not know if the bid is accepted until three months from now. The firm will need Swiss francs to cover expenses but will be paid by the Swiss government in dollars if it is hired for the project. The firm can best insulate itself against exchange rate exposure by:
A) ​selling futures in francs.
B) ​buying futures in francs.
C) ​buying franc put options.
D) ​buying franc call options.

Quizplus · Accepted Answer

The firm will need Swiss francs in the future to cover expenses, so buying franc call options allows them to lock in a price to purchase francs, protecting against the risk of the franc appreciating.

​A US Firm Is Bidding for a Project Needed by the the Swiss

A US Firm Is Bidding for a Project Needed by the the Swiss