derivative hedging

Let’s review some derivatives hedging. In each of these cases, what is your risk and how do you hedge it? 1) If you’re a US company and going to be receiving Euro in 90 days 2) If you’re a US company and going to be paying Euro in 90 days 3) If you’re going to issue in 180 days a bond whose coupon is tied to LIBOR

1 and 2 use forwards 3 enter into a payer swaption

hehe… yeah.

gz2nyc Wrote: ------------------------------------------------------- > Let’s review some derivatives hedging. In each of > these cases, what is your risk and how do you > hedge it? > > > 1) If you’re a US company and going to be > receiving Euro in 90 days sell euros in 90 days > > 2) If you’re a US company and going to be paying > Euro in 90 days buy euros in 90 days > > 3) If you’re going to issue in 180 days a bond > whose coupon is tied to LIBOR I guess enter a receiver swap - pay fixed and receive based on libor

Ok this was too easy. I was worried they’d ask on the exam conceptual questions like this but with a a more twisted flavor… Let’s say an investor expects Euro is going to rise and wants to take profit. Can he long a Euro forward as well as short a USD forward?