2 Fluor Corporation has just made a French euro bid on a maj

[2] Fluor Corporation has just made a French euro bid on a major project located in France. It won\'t find out for 60 days whether it has won the contract. There will be a 10% signing bonus payable to the winner in euros. Fluor manager has asked you to figure out the best way to protect its cashflows against currency risk on its bid. You are considering the following options:

i. buy a euro futures contract ii. sell a euro call option iii. sell a euro futures contract iv. buy a euro put option

Which option should you pick? Why?

Solution

Since the Flour manager want to hedge its currency risk he should buy the euro futures contract because in that way any fluctuation in currency in next 60 days can be mitigated using this. Any loss in vlaue of currency will be sqaure off by euro futures. It always better to buy futures rater than option while hegding currency risk.