Question Details

How can the Sports Exports Company use currency options 



1. How can the Sports Exports Company use currency futures contracts to hedge against exchange
rate risk? Are there any limitations of using currency futures contracts that would prevent the
Sports Exports Company from locking in a specific exchange rate at which it can sell all the
pounds it expects to receive in each of the upcoming months?

2. How can the Sports Exports Company use currency options to hedge against exchange rate risk?
Are there any limitations of using currency options contracts that would prevent the Sports
Exports Company from locking in a specific exchange rate at which it can sell all the pounds it
expects to receive in each of the upcoming months?

3. Jim Logan, owner of the Sports Exports Company, is concerned that the pound may depreciate
substantially over the next month, but he also believes that the pound could appreciate
substantially if specific situations occur. Should Jim use currency futures or currency options to
hedge the exchange rate risk? Is there any disadvantage of selecting this method for hedging?




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