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QUESTION

Your firm is an Italian importer of bicycles. You have placed an order with a Swiss firm for SFr. 2,000,000 worth of bicycles. Payment (in francs) is...

Your firm is an Italian importer of bicycles. You have placed an order with a Swiss firm for SFr. 2,000,000 worth of bicycles. Payment (in francs) 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. 

12-months Forward British Pound Contracts (£)10,000 = ($/£)2.0000

12-months Forward Euros Contracts (€)10,000 =($/€) 1.6000

12-months Forward Swiss Francs Contracts (SFr)10,000 = ($/SFr)=1.0000. 

a) Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts.

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