Question

Which of the following is the least likely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
a. Purchase a call option on francs.
b. Sell a futures contract on francs.
c. Obtain a forward contract to purchase francs forward.
d. All of the above are appropriate strategies for the scenario described.

Answer 1

Answer:B. Sell a futures contract on francs.

Explanation: Futures contracts are contracts that involves the legally agreed purchase or sale of an asset,a commodity or a foreign currency at a given price in a specified period in the future.

Most organisations and Government agencies go into futures contracts especially in situations where foreign exchange is expected to rise in future. THE OBLIGATION OF THE BUYER IS TO ENSURE THAT HE OR SHE BUYS THE ASSET, COMMODITY or CURRENCY WHEN THE FUTURES CONTRACTS EXPIRES.