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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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?
O 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.
O 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.
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