Finance: De-pegging of Franc and Hedging Strategies

Running head: FINANCE
Finance
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FINANCE
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Table of Contents
Question 1:.................................................................................................................................2
Discussing the relevant reasons behind the de-pegging of franc, while evaluating the hedging
strategies implemented by the Swiss Exporter and other domestic firms:.................................2
Question 2:.................................................................................................................................3
a.1) Unhedged strategy for the payment of ABC:......................................................................3
a.2) Forward hedge strategy for the payment of ABC:..............................................................3
a.3) Money Market hedge strategy for the payment of ABC:....................................................4
a.4) Option hedge strategy for the payment of ABC:................................................................4
b) Depicting the most optimal hedge for ABC:.........................................................................5
Reference and Bibliography:......................................................................................................7

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Question 1:
Discussing the relevant reasons behind the de-pegging of franc, while evaluating the
hedging strategies implemented by the Swiss Exporter and other domestic firms:
The de-pegging of franc was mainly initiated during 2011, where the Central bank of
Switzerland used an alternative strategy, which allowed them to devalue their currency in
comparisons to USD and GBP. The organizations in Sweetland was mainly affected by the
rising value of Swiss franc in comparison to other currencies, as it directly reduces the
competitiveness of their organization in the international market. The de-pegging was
initiated during the financial year of 2015, which directly resulted from the high devaluation
of Euro and Switzerland currency (Admiralmarkets.com 2018). Furthermore, there were
relevant factors that initiated the de-pegging measures taken by Central Bank of Switzerland
over the period of time.
 Constant protest from the citizens of Sweetland: The constant protest of the citizens was
mainly conducted for the measures taken by the Switzerland Central Bank for devaluating
the Swiss franc. The citizens were concern regain the constant accumulation of Euro
currency within the depository of Central Bank. De-valuation of Euro: The second major factor is considered to be the Euro devaluation,
which was indicted after the Brexit announcement. The major aim of the Swiss Central
Bank was to devalue their currency by increasing their exposure in the Euro currency.
The devaluation mainly augmented the future degeneration of Swiss franc and hampered
the current business conditions of the country (Cnbc.com 2015).
The swiss exporters and domestic firms seeing the decline in the Swiss franc would
eventually take-up certain hedging measure for reducing the level of risk from currency