$5$ Your firm is a U$.$K$.-$based EXporter of bicycles. British bicycles.

AS AN EXPORTER, YOU ARE SELLING BICYCLES AND PAID SWISS FRANCS.

You have sold an order to a Swiss retailer for SFr$1,000,000$ worth of bicycles. Payment $($in Swiss

francs$)$ is due in twelve $(12)$ months. Your firm wants to hedge the payable into pounds. $($As

wonderful as the U$.$S$.$ dollar is$,$ you do not want to hedge into dollars.$)$

a$)$ Detail a strategy using forward contracts that will hedge your exchange rate risk INTO

BRITISH POUNDS. You must clearly state what amount of which currency you are

selling or buying at what price. Give me the trading orders.

$(10$ points$)$

b$)$ Estimate the receipt in pounds in $12$ months of the strategy that you offered in part a$).$

$(10$ points$)$

c$)$ Outline a strategy using spot exchange rates and borrowing or lending that that will hedge your

exchange rate risk. Your answer does not require numbers, it requires a sentence.

$(10$ points$)$

d$)$ Estimate the pound$-$denominated future value of the strategy that you offered in part c$).$ Use

the LIBOR interest rate convention.