Explore BrainMass

Hedging for a decrease in the valueaHedging for a Decrease in the Value of Swiss francs of Swiss francs

You are an arbitrageur in London. Swiss francs are presently selling in London for U.S. $0.67. You anticipate that they will increase in value and be selling for U.S. $0.70 in 30 days. You purchase $1 million worth of francs on the spot market. Is there anything that you can do to hedge your bet? That is, is there some way to ensure that you won't lose all of your money in case the value of the franc plummets?

Solution Preview

Since you are long on the asset (Swiss Franc) , you can go short in the Futures market and sell the asset (Swiss Franc) ...

Solution Summary

The solution describes how the risk of currency going down in value can be hedged.