You plan to visit Geneva, Switzerland, in three months to attend an international business conference. You expect to incur a total cost of SF6,200 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three- month forward rate is $0.69/SF. You can buy the three-month call option on SF with an exercise price of $0.70/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. a. Calculate your expected dollar cost of buying SF6,200 if you choose to hedge by a call option on SF. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Total expected cost b. Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. Future dollar cost c. At what future spot exchange rate will you be indifferent between the forward and option market hedges? (Do not round intermediate calculations. Round your answer to 5 decimal places.) Future spot exchange rate

You plan to visit Geneva, Switzerland, in three months to attend an international business conference. You expect to incur a total cost of SF6,200 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three- month forward rate is $0.69/SF. You can buy the three-month call option on SF with an exercise price of $0.70/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. a. Calculate your expected dollar cost of buying SF6,200 if you choose to hedge by a call option on SF. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Total expected cost b. Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. Future dollar cost c. At what future spot exchange rate will you be indifferent between the forward and option market hedges? (Do not round intermediate calculations. Round your answer to 5 decimal places.) Future spot exchange rate

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 11P: Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for 1 million francs at today’s...

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You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of CHF 15,000 for lodging, meals and transportation during your stay. As of today, the CHF/USD rate is 1.1013 and the three-month forward rate is 1.1154. You can buy the three-month call option on CHF with the exercise rate of 1.1000 for the premium of $0.018 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 3.2 percent per annum in the United States and 1.5 percent per annum in Switzerland. Calculate your expected dollar cost if you choose to hedge via call option on SF. (USD, no cents)
You are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. 1. calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. 2. at what future spot exchange rate will you be…
You are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. QuestionCalculate your expected dollar cost of buying SF5, 000 if you choose to hedge via call option on SF.
You are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland.REQUIRED;(i) At what future spot exchange rate will you be indifferent between the forward and option market hedges?
You are the U.S residents who are going to pay SF 5,000 for your family flight tickets to Switzerland in 3 months later. The 3-month forward rate is $0.63/SF. Today, the spot rate of USD to Swiss Franc (SF) is 0.60. You plan to hedge the exchange rate by entering into a 3- month call option on SF. The exercise rate of the option is $0.64/SF for the premium of $0.05 per SF. The addition information you have collected is 3-month USD interest rate 6 percent per annum and SF interest rate 4 percent per annum. You expect the future spot exchange rate would be the forward rate. a) What is your cost of buying SF5,000 with SF call option used for hedging? b) Compared with (a), what is the dollar (USD) cost of SF payable if you hedge using a forward contract. c) Determine the future spot exchange rate that will equate the total cost of using forward and option market hedges. d) If the SF appreciates beyond the exercise price of call option, what is your total dollar cost of SF…
ou are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland.REQUIRED;(i) Calculate your expected dollar cost of buying SF5, 000 if you choose to hedge via call option on SF. (ii) calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. (iii) at what future…
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