If I am a US company and will receive swiss franc payment in 3 months. How do I hedge with a forward? Answer: Short swiss franc forward. I am confused!!! Is there a simple way to remember this???
Correct. You will long the US currency (buy currency at forward price) and short swiss franc
Alta17 Wrote: ------------------------------------------------------- > If I am a US company and will receive swiss franc > payment in 3 months. How do I hedge with a > forward? > > Answer: Short swiss franc forward. > > I am confused!!! Is there a simple way to remember > this??? As a US company, when the payment date comes you will want to convert francs into US dollar. So you would like to have a guareented sales price for francs, and that is done through a short position in francs.
If SFr appreciates , your short position loses money. But since you are guaranteed a certain number of SFr based on orders fulfilled , your long asset ( designated in SFr) appreciates , cancelling any losses. If the asset depreciates relative to dollars ( SFr falling ) , the short position cuts your losses . So you get a fixed number of dollars regardless of how SFr behaves