Inmar Corporation is a mail-order company that imports a lot of its products from Switzerland. The firm must place its order six months in advance and must pay upon
Delivery. If the CFO is concerned that the dollar will depreciate relative to the Swiss franc, she
Could execute a hedge by

Question

Quizplus · Accepted Answer

Buying call options on the Swiss franc allows the CFO to lock in a purchase price for the francs now, protecting against the risk of the dollar depreciating relative to the Swiss franc. This way, if the dollar does depreciate, the company can still buy francs at the pre-determined price, effectively hedging against the currency risk.

Inmar Corporation Is a Mail-Order Company That Imports a Lot