Estimating the Hedged cost of Payables Grady Co. is a manufacturer of hockey equipment in Chicago, and it will need 3 million Swiss francs in one year to pay for imported supplies. The U.S. oneyear interest rate is 2 percent, versus 7 percent for Switzerland’s one-year interest rate. The spot rate of the Swiss franc is $0.90, and the one-year forward rate of the Swiss franc is $0.88. A one-year call option on Swiss franc exists with an exercise price of $0.90 and a premium of $0.03 per unit. As the treasurer of Grady Co., you think the spot rate of the Swiss franc is the best forecast of the future spot rate of the Swiss franc.
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