Your firm is a U$.$K$.-$based exporter of British bicycles. You have sold an order to an Italian firm for $1,000,000$ worth of bicycles. Payment from the Italian firm $($in $)$ is due in twelve months. Your firm wants to hedge the receivable into pounds. Not dollars. Use the following table for exchange rate data.

Country U$.$S$.$S equiv. Currency per U$.$S$.$$

Tuesday Monday Tuesday Monday

Britain$($pound$)62,5001\mathrm{.}60001\mathrm{.}61000\mathrm{.}6250\mathrm{.}6211$

$1$ Month Forward $1\mathrm{.}61001\mathrm{.}63000\mathrm{.}62110\mathrm{.}6173$

$3$ Months Forward $1\mathrm{.}63001\mathrm{.}66000\mathrm{.}61730\mathrm{.}6024$

$6$ Months Forward $1\mathrm{.}66001\mathrm{.}72000\mathrm{.}60240\mathrm{.}5814$

$12$ Months Forward $1\mathrm{.}72001\mathrm{.}80000\mathrm{.}58140\mathrm{.}5556$

Euro $62,5001\mathrm{.}20001\mathrm{.}20000\mathrm{.}8333330\mathrm{.}833333$

$1$ Month Forward $1\mathrm{.}21001\mathrm{.}21000\mathrm{.}826450\mathrm{.}82645$

$3$ Months Forward $1\mathrm{.}23001\mathrm{.}23000\mathrm{.}8130080\mathrm{.}813008$

$6$ Months Forward $1\mathrm{.}26001\mathrm{.}26000\mathrm{.}7936510\mathrm{.}793651$

$12$ Months Forward $1\mathrm{.}29001\mathrm{.}32000\mathrm{.}7751940\mathrm{.}7575758$

Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type.

Multiple Choice

Sell $1$m forward using $16$ contracts at the forward rate of $$1\mathrm{.}29$ per $1.$ Buy $750,000$ forward using $12$ contracts at the forward rate of $$1\mathrm{.}72$ per $1.$

Borrow $970,873\mathrm{.}79$ in one year you owe $1$m$,$ which will be financed with the receivable. Convert $970,873\mathrm{.}79$ to dollars at spot, receive $$1,165,048\mathrm{.}54.$ Convert dollars to pounds at spot, receive $728,155\mathrm{.}34.$

Sell $1$m forward using $16$ contracts at the forward rate of $$1\mathrm{.}29$ per $1.$

Sell $1$m forward using $16$ contracts at $$1\mathrm{.}20$ per $1.$ Buy $750,000$ forward using $12$ contracts at $$1\mathrm{.}60$ per $1.$