An FI has made a loan commitment of SF10 million that is likely to be taken down in six months The current spot exchange rate is $0 60 SF a Is the FI exposed to the dollar depreciating or the dollar appreciating Why b If the FI decides to hedge using SF futures, should it buy or sell SF futures c I...

a The FI is exposed to the dollar depreciating because it would require more ...

An FI has made a loan commitment of SF10 million that is likely to be taken down

Question:

An FI has made a loan commitment of SF10 million that is likely to be taken down in six months. The current spot is $0.60/SF.
a. Is the FI exposed to the dollar depreciating or the dollar appreciating? Why?
b. If the FI decides to hedge using SF futures, should it buy or sell SF futures?
c. If the spot rate six months from today is $0.64/SF, what dollar amount is needed in six months if the loan is drawn down?
d. A six-month SF futures contract is available for $0.61/SF. What is the net amount needed at the end of six months if the FI has hedged using the SF10 million of futures contract? Assume futures prices are equal to spot prices at the time of payment, that is, at maturity.
e. If the FI decides to use options to hedge, should it purchase call or put options?
f. Call and put options with an exercise price of $0.61/SF are selling for $0.02 and $0.03 per SF, respectively. What would be the net amount needed by the FI at the end of six months if it had used options instead of futures to hedge this exposure? Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...