Your U.S. firm will need to make a payment of 200,000 Swiss francs in 6 months and
would like to hedge its exchange rate risk. The following data has been collected on
the Swiss franc/U.S. $ exchange rates: Explain what your firm should do to hedge the risk completely. Be specific. What will
be the dollar cash outflow to your firm in 6 months if it executes this hedge? What
would it be if the actual future spot rate were 1.0890 Swiss francs/$ in 6 months, and
your firm had not executed this hedge?

Question

Your U.S. firm will need to make a payment of 200,000 Swiss francs in 6 months and
would like to hedge its exchange rate risk. The following data has been collected on
the Swiss franc/U.S. $ exchange rates:  Explain what your firm should do to hedge the risk completely. Be specific. What will
be the dollar cash outflow to your firm in 6 months if it executes this hedge? What
would it be if the actual future spot rate were 1.0890 Swiss francs/$ in 6 months, and
your firm had not executed this hedge?

Quizplus · Accepted Answer

The Answer of Your U.S. firm will need to make a payment of 200,000 Swiss francs in 6 months and
would like to hedge its exchange rate risk. The following data has been collected on
the Swiss franc/U.S. $ exchange rates:  Explain what your firm should do to hedge the risk completely. Be specific. What will
be the dollar cash outflow to your firm in 6 months if it executes this hedge? What
would it be if the actual future spot rate were 1.0890 Swiss francs/$ in 6 months, and
your firm had not executed this hedge?

Your US Firm Will Need to Make a Payment of 200,000