Question
In: Finance
A US company has ordered watches from Switzerland that will require a payment of Swiss francs...
A US company has ordered watches from Switzerland that will require a payment of Swiss francs (CHF) 500,000 in three months. The expected spot prices to prevail in three months range from $1.00 to $1.12. The following information is available:
Spot rate $1.06/CHF
3-month forward rate $1.07/CHF
Interest rate in US5.00%
Interest rate in Switzerland2.00%
Call option premium$0.040E=$1.06
Put Optionpremium$0.045E=$1.06
- How can the firm hedge using forward rates? Show the payoffs for the expected spot rates.
- How can the firm hedge using money market rates? Show the payoffs for the expected spot rates.
- How can the firm hedge using options. Show the payoffs for the expected spot rates.
Which hedging would you recommend
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 4% when investing funds,
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Narto Co. (a U.S. firm) exports to Switzerland and expects to
receive 200,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 9% when investing funds,
and 10% when borrowing funds. The spot rate of the Swiss franc is
$.80. Narto expects that the spot rate of the Swiss franc will be
$.75 in one year. There is a put option available on...
Narto Co. (a U.S. firm) exports to Switzerland and expects to receive 200,000 Swiss francs in...
Narto Co. (a U.S. firm) exports to Switzerland and expects to
receive 200,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 9% when investing funds,
and 10% when borrowing funds. The spot rate of the Swiss franc is
$.80. Narto expects that the spot rate of the Swiss franc will be
$.75 in one year. There is a put option available on...
1) You visited Switzerland over summer and brought back 3,722.25 swiss francs to the United States....
1) You visited Switzerland over summer and brought back 3,722.25
swiss francs to the United States. How many U.S. dollars will you
get if you exchange your swiss francs for U.S. dollars? The
exchange rate is 1 U.S dollar = 1.0147 swiss francs.
Enter your answer rounded off to two decimal points. Do not
enter $ or comma in the answer box. For example, if your answer is
$12.345 then enter as 12.35 in the answer box.
2) Suppose the...
Raton is a U.S. Company that has net inflows of 80 million Swiss francs and net...
Raton is a U.S. Company that has net inflows of 80
million Swiss francs and net outflows of 60 million British pounds.
The present direct exchange rate of the Swiss franc is $1.05/1Swiss
franc while the present direct exchange rate of the pound is $1.31.
Raton has not hedged these positions. The Swiss franc and British
pound are highly correlated in their movements against the dollar.
Explain whether Raton will be favorably or adversely affected if
the dollar weakens against...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days.
The current spot rate is $.6698/SFr and the 90 day forward rate is
$.6776/SFr.
90 day call option on SFr:
strike=$.68, premium=$.0096
90 day put option on SFr:
strike=$.68, premium=$.0105
Interest
rates
US
Switz.
Possible spot rate in 90 days
90 day deposit
rate
3%
3%
Spot
Probability
90 day borrowing
rate
3.2%
3.2%
$.65
10%
$.67
20%
$.69
70%
______________________________________________________________________
Calculate the expected...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days.
The current spot rate is $.6698/SFr and the 90 day forward rate is
$.6776/SFr.
90 day call option on SFr:
strike=$.68, premium=$.0096
90 day put option on SFr:
strike=$.68, premium=$.0105
Interest
rates
US
Switz.
Possible spot rate in 90 days
90 day deposit
rate
3%
3%
Spot
Probability
90 day borrowing
rate
3.2%
3.2%
$.65
10%
$.67
20%
$.69
70%
______________________________________________________________________
Calculate the expected...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days.
The current spot rate is $.6698/SFr and the 90 day forward rate is
$.6776/SFr.
90 day call option on SFr:
strike=$.68, premium=$.0096
90 day put option on SFr:
strike=$.68, premium=$.0105
Interest
rates
US
Switz.
Possible spot rate in 90 days
90 day deposit
rate
3%
3%
Spot
Probability
90 day borrowing
rate
3.2%
3.2%
$.65
10%
$.67
20%
$.69
70%
______________________________________________________________________
Calculate the expected...
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