Your firm is a U.K.-based exporter of bicycles. You have sold an order to a French firm for €1,000,000 worth of bicycles. Payment from the French firm (in euro) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity.
A)Go short 100 12-month euro futures contracts; and short 80 12-month pound futures contracts.
B)Go long 100 12-month euro futures contracts; and long 80 12-month pound futures contracts.
C)Go long 100 12-month euro futures contracts; and short 80 12-month pound futures contracts.
D)Go short 100 12-month euro futures contracts; and long 80 12-month pound futures contracts.
E)None of the above

Question

Your firm is a U.K.-based exporter of bicycles. You have sold an order to a French firm for €1,000,000 worth of bicycles. Payment from the French firm (in euro) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity. 
A)Go short 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
B)Go long 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
C)Go long 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
D)Go short 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
E)None of the above

Quizplus · Accepted Answer

The Answer of Your firm is a U.K.-based exporter of bicycles. You have sold an order to a French firm for €1,000,000 worth of bicycles. Payment from the French firm (in euro) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity. 
A)Go short 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
B)Go long 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
C)Go long 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
D)Go short 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
E)None of the above

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