Chapter 01 · Section 1.1
Case Study - A Swiss Importer
Assume you are a Swiss importer of German cars. It is May 1 and your next delivery is expected on July 15, for which you will have to pay 500,000 Deutsche Marks on delivery.
In order to avoid any foreign exchange risk you can:
a) buy DM 500,000 now, May 1;
b) buy DM 500,000 in July;
c) buy DM 500,000 forward for July 15 delivery.
On one hand, you need to protect yourself against the foreign exchange risk
immediately. On the other hand, you do not need the Deutsche marks yet.