Portfolios of derivatives will best hedge your exposure

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Reference no: EM131873723

You ask your analysts to come up with a portfolio of derivatives to hedge your risk. They come back with the following suggestions: 1. 4,540 long forwards, 4,750 short puts with a strike of CNY 7/$, and 4,750 short puts with a strike of CNY 6.5/$. 2. 5,400 long forwards and 3. 5,650 long forwards, 1,500 long puts with a strike of CNY 7/$, and 250 long puts with a strike of CNY 6.5/$. Which of these portfolios of derivatives will best hedge your exposure? For each of the eventual spot rates listed in (f) and (g), calculate the combined profits/losses of each of the derivative portfolios and your t-shirt sale profits. You may use any metric you like to determine which has the least exchange rate exposure.

Reference no: EM131873723

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