Your Firm Is a U A)Go Short 12 Six-Month Forward Contracts; Pay $1,630,000

question 43

Multiple Choice

Your firm is a U.S.-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 three 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 how much (in $) your firm will have. $\begin{array}{|c|c|c|r|r|}\hline \text { Country } & {\text { U.S.\$ equiv. }} && \text { Currency per U.S.\$ } \\\hline & \text { Tuesday } & \text { Monday } & \text { Tuesday } & \text { Monday } \\\hline \text { Britain(pound) } ? 62,500 & 1.6000 & 1.6100 & 0.625 & 0.6211 \\\hline \text { 1 Month Forward } & 1.6100 & 1.6300 & 0.3211 & 0.6173 \\\hline \text { 3 Months Forward } & 1.6300 & 1.6600 & 0.6173& 0.6024 \\\hline \text { 6 Months Forward } & 1.6600 & 1.7200 & 0.6024 & 0.5814 \\\hline \text { 12 Months Forward } & 1.7200 & 1.8000 & 0.5814 & 0.5556 \\\hline\end{array}$

• A)Go short 12 six-month forward contracts; pay $1,630,000.
• B)Go short 16 six-month forward contracts; pay $1,630,000.
• C)Go long 16 six-month forward contracts; raise $1,660,000.
• D)Go long 12 six-month forward contracts; receive $1,660,000.

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Definitions:

Profit Performance

An assessment of the profitability of a company over a given period, considering revenues, expenses, and net income.

Losses

The reduction in financial resources due to business operations or other activities exceeding the income generated, often reflected in the income statement.