A customer sells a LIFFE Euro Swiss futures contract. Which of the following risks could he be trying to hedge?
A) An increase in forward USD/CHF
B) Falling CHF interest rates
C) A decrease in forward USD/CHF
D) Rising CHF interest rates

Question

Quizplus · Accepted Answer

The customer is selling a futures contract, which means they are taking a short position on the underlying asset, in this case, Euro/Swiss franc. By doing so, the customer is exposed to the risk of rising Swiss interest rates, which would result in a decrease in the value of the futures contract. Selling the contract helps hedge against this risk. The other choices are not relevant in this case.

A Customer Sells a LIFFE Euro Swiss Futures Contract