21
Copyright © 2018 McGraw-Hill
Answer: C
Explanation: 100 contracts = £1,000,000 / £10,000; $2,000,000 = £1,000,000 × $2; Solve the
proportion for X: ($2,000,000 / X) = ($1.60 / €1), where X = €1,250,000. Next, €1,250,000 /
€10,000 = 125 contracts.
Topic: Forward Market Hedge
22
30) Your firm is a U.K.-based exporter of bicycles. You have sold an order to a Swiss firm for SFr.
1,000,000 worth of bicycles. Payment from the Swiss firm (in Swiss 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.
U.S. $ equiv.
Currency per U.S. $
Contract Size
Country
Tuesday
Monday
Tuesday
Monday
£
10,000
Britain
(pound)
$
1.9600
$
1.9400
£
0.5102
£
0.5155
1 month
forward
$
1.9700
$
1.9500
£
0.5076
£
0.5128
3 months
forward
$
1.9800
$
1.9600
£
0.5051
£
0.5102
6 months
forward
$
1.9900
$
1.9700
£
0.5025
£
0.5076
12
months
forward
$
2.0000
$
1.9800
£
0.5000
£
0.5051
€
10,000
Euro
$
1.5600
$
1.5400
€
0.6410
€
0.6494
1 month
forward
$
1.5700
$
1.5500
€
0.6369
€
0.6452
3 months
forward
$
1.5800
$
1.5600
€
0.6329
€
0.6410
6 months
forward
$
1.5900
$
1.5700
€
0.6289
€
0.6369
12
months
forward
$
1.6000
$
1.5800
€
0.6250
€
0.6329
SFr.
10,000
Swiss
franc
$
0.9200
$
0.9000
SFr.
1.0870
SFr.
1.1111
1 month
forward
$
0.9400
$
0.9200
SFr.
1.0638
SFr.
1.0870
3 months
forward
$
0.9600
$
0.9400
SFr.
1.0417
SFr.
1.0638
6 months
forward
$
0.9800
$
0.9600
SFr.
1.0204
SFr.
1.0417
12
months
forward
$
1.0000
$
0.9800
SFr.
1.0000
SFr.
1.0204
A) Go short 100 12-month Swiss franc futures contracts; and long 50 12-month pound futures
contracts.
B) Go long 100 12-month Swiss franc futures contracts; and short 50 12-month pound futures
contracts.
C) Go short 100 12-month Swiss franc futures contracts; and short 50 12-month pound futures
contracts.
D) Go long 100 12-month Swiss franc futures contracts; and long 50 12-month pound futures
contracts.
E) none of the options
24
31) Your firm is a U.K.-based importer of bicycles. You have placed an order with a Swiss firm for
SFr. 1,000,000 worth of bicycles. Payment (in Swiss 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.
U.S. $ equiv.
Currency per U.S. $
Contract Size
Country
Tuesday
Monday
Tuesday
Monday
£
10,000
Britain
(pound)
$
1.9600
$
1.9400
£
0.5102
£
0.5155
1 month
forward
$
1.9700
$
1.9500
£
0.5076
£
0.5128
3 months
forward
$
1.9800
$
1.9600
£
0.5051
£
0.5102
6 months
forward
$
1.9900
$
1.9700
£
0.5025
£
0.5076
12
months
forward
$
2.0000
$
1.9800
£
0.5000
£
0.5051
€
10,000
Euro
$
1.5600
$
1.5400
€
0.6410
€
0.6494
1 month
forward
$
1.5700
$
1.5500
€
0.6369
€
0.6452
3 months
forward
$
1.5800
$
1.5600
€
0.6329
€
0.6410
6 months
forward
$
1.5900
$
1.5700
€
0.6289
€
0.6369
12
months
forward
$
1.6000
$
1.5800
€
0.6250
€
0.6329
SFr.
10,000
Swiss
franc
$
0.9200
$
0.9000
SFr.
1.0870
SFr
.
1.1111
1 month
forward
$
0.9400
$
0.9200
SFr.
1.0638
SFr
.
1.0870
3 months
forward
$
0.9600
$
0.9400
SFr.
1.0417
SFr
.
1.0638
6 months
forward
$
0.9800
$
0.9600
SFr.
1.0204
SFr
.
1.0417
12
months
forward
$
1.0000
$
0.9800
SFr.
1.0000
SFr
.
1.0204
A) Go short 100 12-month Swiss franc futures contracts; and long 50 12-month pound futures
contracts.
B) Go long 100 12-month Swiss franc futures contracts; and short 50 12-month pound futures
contracts.
C) Go short 100 12-month Swiss franc futures contracts; and short 50 12-month pound futures
contracts.
D) Go long 100 12-month Swiss franc futures contracts; and long 50 12-month pound futures
contracts.
E) none of the options
26
32) Your firm is a Swiss exporter of bicycles. You have sold an order to a British firm for
£1,000,000 worth of bicycles. Payment from the British firm (in pounds sterling) 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.
U.S. $ equiv.
Currency per U.S. $
Contract Size
Country
Tuesday
Monday
Tuesday
Monday
£
10,000
Britain
(pound)
$
1.9600
$
1.9400
£
0.5102
£
0.5155
1 month
forward
$
1.9700
$
1.9500
£
0.5076
£
0.5128
3 months
forward
$
1.9800
$
1.9600
£
0.5051
£
0.5102
6 months
forward
$
1.9900
$
1.9700
£
0.5025
£
0.5076
12
months
forward
$
2.0000
$
1.9800
£
0.5000
£
0.5051
€
10,000
Euro
$
1.5600
$
1.5400
€
0.6410
€
0.6494
1 month
forward
$
1.5700
$
1.5500
€
0.6369
€
0.6452
3 months
forward
$
1.5800
$
1.5600
€
0.6329
€
0.6410
6 months
forward
$
1.5900
$
1.5700
€
0.6289
€
0.6369
12
months
forward
$
1.6000
$
1.5800
€
0.6250
€
0.6329
SFr.
10,000
Swiss
franc
$
0.9200
$
0.9000
SFr.
1.0870
SFr
.
1.1111
1 month
forward
$
0.9400
$
0.9200
SFr.
1.0638
SFr
.
1.0870
3 months
forward
$
0.9600
$
0.9400
SFr.
1.0417
SFr
.
1.0638
6 months
forward
$
0.9800
$
0.9600
SFr.
1.0204
SFr
.
1.0417
12
months
forward
$
1.0000
$
0.9800
SFr.
1.0000
SFr
.
1.0204
A) Go short 100 12-month pound futures contracts; and long 200 12-month SFr. futures contracts.
B) Go long 100 12-month pound futures contracts; and short 200 12-month SFr. futures contracts.
C) Go short 100 12-month pound futures contracts; and short 200 12-month SFr. futures contracts.
D) Go long 100 12-month pound futures contracts; and long 200 12-month SFr. futures contracts.
E) none of the options
27
Copyright © 2018 McGraw-Hill
Answer: A
Explanation: 100 contracts = £1,000,000 / £10,000; $2,000,000 = £1,000,000 × $2; Solve the
proportion for X: ($2,000,000 / X) = ($1 / SFr. 1), where X = SFr. 2,000,000. Next, SFr. 2,000,000/
SFr. 10,000 = 200 contracts.
Topic: Forward Market Hedge
28
33) Your firm is a Swiss importer of bicycles. You have placed an order with a British firm for
£1,000,000 worth of bicycles. Payment (in pounds sterling) 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.
U.S. $ equiv.
Currency per U.S. $
Contract Size
Country
Tuesday
Monday
Tuesday
Monday
£
10,000
Britain
(pound)
$
1.9600
$
1.9400
£
0.5102
£
0.5155
1 month
forward
$
1.9700
$
1.9500
£
0.5076
£
0.5128
3 months
forward
$
1.9800
$
1.9600
£
0.5051
£
0.5102
6 months
forward
$
1.9900
$
1.9700
£
0.5025
£
0.5076
12
months
forward
$
2.0000
$
1.9800
£
0.5000
£
0.5051
€
10,000
Euro
$
1.5600
$
1.5400
€
0.6410
€
0.6494
1 month
forward
$
1.5700
$
1.5500
€
0.6369
€
0.6452
3 months
forward
$
1.5800
$
1.5600
€
0.6329
€
0.6410
6 months
forward
$
1.5900
$
1.5700
€
0.6289
€
0.6369
12
months
forward
$
1.6000
$
1.5800
€
0.6250
€
0.6329
SFr.
10,000
Swiss
franc
$
0.9200
$
0.9000
SFr.
1.0870
SFr
.
1.1111
1 month
forward
$
0.9400
$
0.9200
SFr.
1.0638
SFr
.
1.0870
3 months
forward
$
0.9600
$
0.9400
SFr.
1.0417
SFr
.
1.0638
6 months
forward
$
0.9800
$
0.9600
SFr.
1.0204
SFr
.
1.0417
12
months
forward
$
1.0000
$
0.9800
SFr.
1.0000
SFr
.
1.0204
A) Go short 100 12-month pound futures contracts; and long 200 12-month SFr. futures contracts.
B) Go long 100 12-month pound futures contracts; and short 200 12-month SFr. futures contracts.
C) Go short 100 12-month pound futures contracts.
D) Go long 100 12-month pound futures contracts; and long 200 12-month SFr. futures contracts.
E) none of the options
29
Copyright © 2018 McGraw-Hill
Answer: B
Explanation: 100 contracts = £1,000,000 / £10,000; $2,000,000 = £1,000,000 × $2; Solve the
proportion for X: ($2,000,000 / X) = ($1 / SFr. 1), where X = SFr. 2,000,000. Next, SFr. 2,000,000/
SFr. 10,000 = 200 contracts.
Topic: Forward Market Hedge
30
34) Your firm is an Italian exporter of bicycles. You have sold an order to a Swiss firm for SFr.
2,000,000 worth of bicycles. Payment from the customer (in Swiss 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.
U.S. $ equiv.
Currency per U.S. $
Contract Size
Country
Tuesday
Monday
Tuesday
Monday
£
10,000
Britain
(pound)
$
1.9600
$
1.9400
£
0.5102
£
0.5155
1 month
forward
$
1.9700
$
1.9500
£
0.5076
£
0.5128
3 months
forward
$
1.9800
$
1.9600
£
0.5051
£
0.5102
6 months
forward
$
1.9900
$
1.9700
£
0.5025
£
0.5076
12
months
forward
$
2.0000
$
1.9800
£
0.5000
£
0.5051
€
10,000
Euro
$
1.5600
$
1.5400
€
0.6410
€
0.6494
1 month
forward
$
1.5700
$
1.5500
€
0.6369
€
0.6452
3 months
forward
$
1.5800
$
1.5600
€
0.6329
€
0.6410
6 months
forward
$
1.5900
$
1.5700
€
0.6289
€
0.6369
12
months
forward
$
1.6000
$
1.5800
€
0.6250
€
0.6329
SFr.
10,000
Swiss
franc
$
0.9200
$
0.9000
SFr.
1.0870
SFr
.
1.1111
1 month
forward
$
0.9400
$
0.9200
SFr.
1.0638
SFr
.
1.0870
3 months
forward
$
0.9600
$
0.9400
SFr.
1.0417
SFr
.
1.0638
6 months
forward
$
0.9800
$
0.9600
SFr.
1.0204
SFr
.
1.0417
12
months
forward
$
1.0000
$
0.9800
SFr.
1.0000
SFr
.
1.0204
A) Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures
contracts.
B) Go short 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures
contracts.
C) Go long 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures
contracts.
D) Go short 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures
contracts.
E) none of the options
32
35) 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.
U.S. $ equiv.
Currency per U.S. $
Contract Size
Country
Tuesday
Monday
Tuesday
Monday
£
10,000
Britain
(pound)
$
1.9600
$
1.9400
£
0.5102
£
0.5155
1 month
forward
$
1.9700
$
1.9500
£
0.5076
£
0.5128
3 months
forward
$
1.9800
$
1.9600
£
0.5051
£
0.5102
6 months
forward
$
1.9900
$
1.9700
£
0.5025
£
0.5076
12
months
forward
$
2.0000
$
1.9800
£
0.5000
£
0.5051
€
10,000
Euro
$
1.5600
$
1.5400
€
0.6410
€
0.6494
1 month
forward
$
1.5700
$
1.5500
€
0.6369
€
0.6452
3 months
forward
$
1.5800
$
1.5600
€
0.6329
€
0.6410
6 months
forward
$
1.5900
$
1.5700
€
0.6289
€
0.6369
12
months
forward
$
1.6000
$
1.5800
€
0.6250
€
0.6329
SFr.
10,000
Swiss
franc
$
0.9200
$
0.9000
SFr.
1.0870
SFr
.
1.1111
1 month
forward
$
0.9400
$
0.9200
SFr.
1.0638
SFr
.
1.0870
3 months
forward
$
0.9600
$
0.9400
SFr.
1.0417
SFr
.
1.0638
6 months
forward
$
0.9800
$
0.9600
SFr.
1.0204
SFr
.
1.0417
12
months
forward
$
1.0000
$
0.9800
SFr.
1.0000
SFr
.
1.0204
A) Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures
contracts.
B) Go short 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures
contracts.
C) Go long 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures
contracts.
D) Go short 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures
contracts.
E) none of the options
37) Your firm is a U.K.-based importer of bicycles. You have placed an order with an Italian firm
for €1,000,000 worth of bicycles. Payment (in euro) is due in 12 months. Use a money market
hedge to redenominate this one-year receivable into a pound-denominated receivable with a
one-year maturity.
Contract Size
Country
U.S. $ equiv.
Currency per
U.S. $
£
10,000
Britain
(pound)
$
1.9600
£
0.5102
interest
APR
12 months
forward
$
2.0000
£
0.5000
rates
€
10,000
Euro
$
1.5600
€
0.6410
i$
=
1
%
12 months
forward
$
1.6000
€
0.6250
i€
=
2
%
SFr.
10,000
Swiss
franc
$
0.9200
SFr.
1.0870
i£
=
3
%
12 months
forward
$
1.0000
SFr.
1.0000
iSFr.
=
4
%
The following were computed without rounding. Select the answer closest to yours.
A) £803,721.49
B) €800,000
C) £780,312.13
D) £72,352.94
38) Your firm is a Swiss 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. Use a
money market hedge to redenominate this one-year receivable into a Swiss franc-denominated
receivable with a one-year maturity.
Contract Size
Country
U.S. $ equiv.
Currency per
U.S. $
£
10,000
Britain
(pound)
$
1.9600
£
0.5102
interest
APR
12 months
forward
$
2.0000
£
0.5000
rates
€
10,000
Euro
$
1.5600
€
0.6410
i$
=
1
%
12 months
forward
$
1.6000
€
0.6250
i€
=
2
%
SFr.
10,000
Swiss
franc
$
0.9200
SFr.
1.0870
i£
=
3
%
12 months
forward
$
1.0000
SFr.
1.0000
iSFr.
=
4
%
The following were computed without rounding. Select the answer closest to yours.
A) SFr. 1,728,900.26
B) SFr. 1,600,000
C) SFr. 1,544,705.88
D) SFr. 800,000
39) Your firm is a Swiss importer of bicycles. You have placed an order with an Italian firm for
€1,000,000 worth of bicycles. Payment (in euro) is due in 12 months. Use a money market hedge
to redenominate this one-year receivable into a Swiss franc-denominated receivable with a
one-year maturity.
Contract Size
Country
U.S. $ equiv.
Currency per
U.S. $
£
10,000
Britain
(pound)
$
1.9600
£
0.5102
interest
APR
12 months
forward
$
2.0000
£
0.5000
rates
€
10,000
Euro
$
1.5600
€
0.6410
i$
=
1
%
12 months
forward
$
1.6000
€
0.6250
i€
=
2
%
SFr.
10,000
Swiss
franc
$
0.9200
SFr.
1.0870
i£
=
3
%
12 months
forward
$
1.0000
SFr.
1.0000
iSFr.
=
4
%
The following were computed without rounding. Select the answer closest to yours.
A) SFr. 1,728,900.26
B) SFr. 1,600,000
C) SFr. 1,544,705.88
D) SFr. 800,000
40) Your firm is an Italian exporter of bicycles. You have sold an order to a British firm for
£1,000,000 worth of bicycles. Payment from the customer (in pounds sterling) is due in 12 months.
Use a money market hedge to redenominate this one-year receivable into a euro-denominated
receivable with a one-year maturity.
Contract Size
Country
U.S. $ equiv.
Currency per
U.S. $
£
10,000
Britain
(pound)
$
1.9600
£
0.5102
interest
APR
12 months
forward
$
2.0000
£
0.5000
rates
€
10,000
Euro
$
1.5600
€
0.6410
i$
=
1
%
12 months
forward
$
1.6000
€
0.6250
i€
=
2
%
SFr.
10,000
Swiss
franc
$
0.9200
SFr.
1.0870
i£
=
3
%
12 months
forward
$
1.0000
SFr.
1.0000
iSFr.
=
4
%
The following were computed without rounding. Select the answer closest to yours.
A) €1,225,490.20
B) €1,244,212.10
C) €1,250,000
D) €1,219,815.78
41) Your firm is an Italian importer of British bicycles. You have placed an order with a British
firm for £1,000,000 worth of bicycles. Payment (in pounds sterling) is due in 12 months. Use a
money market hedge to redenominate this one-year receivable into a euro-denominated receivable
with a one-year maturity.
Contract Size
Country
U.S. $ equiv.
Currency per
U.S. $
£
10,000
Britain
(pound)
$
1.9600
£
0.5102
interest
APR
12 months
forward
$
2.0000
£
0.5000
rates
€
10,000
Euro
$
1.5600
€
0.6410
i$
=
1
%
12 months
forward
$
1.6000
€
0.6250
i€
=
2
%
SFr.
10,000
Swiss
franc
$
0.9200
SFr.
1.0870
i£
=
3
%
12 months
forward
$
1.0000
SFr.
1.0000
iSFr.
=
4
%
The following were computed without rounding. Select the answer closest to yours.
A) €1,225,490.20
B) €1,244,212.10
C) €1,250,000
D) €1,219,815.78
42) Your firm is a U.K.-based exporter of bicycles. You have sold an order to a Swiss firm for SFr.
1,000,000 worth of bicycles. Payment from the Swiss firm (in Swiss francs) is due in 12 months.
Use a money market hedge to redenominate this one-year receivable into a euro-denominated
receivable with a one-year maturity.
Contract Size
Country
U.S. $ equiv.
Currency per
U.S. $
£
10,000
Britain
(pound)
$
1.9600
£
0.5102
interest
APR
12 months
forward
$
2.0000
£
0.5000
rates
€
10,000
Euro
$
1.5600
€
0.6410
i$
=
1
%
12 months
forward
$
1.6000
€
0.6250
i€
=
2
%
SFr.
10,000
Swiss
franc
$
0.9200
SFr.
1.0870
i£
=
3
%
12 months
forward
$
1.0000
SFr.
1.0000
iSFr.
=
4
%
The following were computed without rounding. Select the answer closest to yours.
A) £500,000
B) £464,874.41
C) £446,730.77
D) £509,900.99
43) Your firm is a U.K.-based importer of bicycles. You have placed an order with a Swiss firm for
SFr. 1,000,000 worth of bicycles. Payment (in Swiss francs) is due in 12 months. Use a money
market hedge to redenominate this one-year receivable into a euro-denominated receivable with a
one-year maturity.
Contract Size
Country
U.S. $ equiv.
Currency per
U.S. $
£
10,000
Britain
(pound)
$
1.9600
£
0.5102
interest
APR
12 months
forward
$
2.0000
£
0.5000
rates
€
10,000
Euro
$
1.5600
€
0.6410
i$
=
1
%
12 months
forward
$
1.6000
€
0.6250
i€
=
2
%
SFr.
10,000
Swiss
franc
$
0.9200
SFr.
1.0870
i£
=
3
%
12 months
forward
$
1.0000
SFr.
1.0000
iSFr.
=
4
%
The following were computed without rounding. Select the answer closest to yours.
A) £500,000
B) £464,874.41
C) £446,730.77
D) £509,900.99