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Rock company (a US firm) exports to Switzerland and expects to receive 500,000 Swiss francs in...
Rock company (a US firm) exports to Switzerland and expects to receive 500,000 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 11% when borrowing funds. The spot rate of the Swiss franc is $.80. The firm expects that the spot rate of the Swiss franc will be $.75 in one year. There is a put option available on Swiss francs with an exercise price of $.79 and a premium of $.02.
a)Determine the amount of dollars that Rock Co. will receive at the end of one year if it implements a money market hedge.
b)Determine the amount of dollars that Rock Co. expects to receive at the end of one year (net of option premium) if it implements a put option hedge.
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jeff jeffy answered 3 years agoRelated Solutions
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