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Answer: CHF appreciation against EUR; sell EUR against buying CHF forward
The French company must pay **CHF** in the future, so its risk is that **CHF appreciates against EUR**. If CHF becomes stronger, the company needs more euros to buy the required francs. To hedge this exposure, the company should **buy CHF forward / sell EUR forward**. That corresponds to **selling EUR against buying CHF forward**.
Author: Manit Arora
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Question 192.4. A French company manufactures and sells products in and for the EU market. The company sources input components from Switzerland, paying the invoices for these inputs in Swiss francs (CHF). What is a French company’s currency risk, and how can it hedge? (Note: modified version of handbook example 11.4).
A
CHF appreciation against EUR; sell CHF against buying EUR forward
B
CHF appreciation against EUR; sell EUR against buying CHF forward
C
CHF depreciation against EUR; sell CHF against buying EUR forward
D
CHF depreciation against EUR; sell EUR against buying CHF forward
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