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 the above are appropriate strategies for the scenario described.

Question

Quizplus · Accepted Answer

Selling a futures contract on francs would expose the firm to unlimited downside risk, which is not an effective strategy for avoiding exchange rate risk. Purchasing a call option or obtaining a forward contract to purchase francs forward are both appropriate strategies for hedging against exchange rate risk. Therefore, option D is not the correct answer as all the options are not equally feasible.

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