Michelle Industries issued a Swiss franc--denominated 5-year discount note for SFr200 million The proceeds were converted to U.S. dollars to purchase capital equipment in the United States. The company want to hedge this currency expose and is considering the following alternatives: • At-the-money Swiss franc call options. Swiss franc forwards • Swiss franc futures. ● What is an advantage of the suitability of this strategy in relation to Michelle's hedging objective? The major difference from the firm's perspective between futures and forwards is in the book-to-market feature of futures. The put option is distinguished by its symmetric payoff. The call option gives the company the ability to benefit from depreciation in the franc, but at a cost equal to the option premium. There is no advantage.

Michelle Industries issued a Swiss franc--denominated 5-year discount note for SFr200 million The proceeds were converted to U.S. dollars to purchase capital equipment in the United States. The company want to hedge this currency expose and is considering the following alternatives: • At-the-money Swiss franc call options. Swiss franc forwards • Swiss franc futures. ● What is an advantage of the suitability of this strategy in relation to Michelle's hedging objective? The major difference from the firm's perspective between futures and forwards is in the book-to-market feature of futures. The put option is distinguished by its symmetric payoff. The call option gives the company the ability to benefit from depreciation in the franc, but at a cost equal to the option premium. There is no advantage.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 4SBD

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