Required: a. Calculate your expected dollar cost of buying SF9,000 if you choose to hedge by a call option on SF. b. Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. c. At what future spot exchange rate will you be indifferent between the forward and option market hedges?
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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 CHF5,000 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is USDO.6000/CHF and the three-month forward rate is USDO.6300/CHF. You can buy the three-month call option on CHF with the exercise rate of USDO.6400/CHF for the premium of USD0.05 per CHF. Assume that your expected future spot exchange rate is the same as the forward rate. The future dollar cost of meeting this CHF obligation if you decide to hedge using a forward contract is USD We do not know the future value of the USD/CHF exchange because the rate is To help make your decision, you calculate the future spot exchange rate where you will be indifferent between the forward and option market hedges knowing that the option will require you to * a premium amount of USD Including the premium amount with the cost of the CHF at the exercise rate would…You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of SF 3.622for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.63/5F and the three month forward rate is $0.63/55 You can buy the three-month call option on SF with the created futies set cachon rate is the same on the forestedate. The three month interest rate is 6 percent chats of $0.775E for the premium of 50.06 per SE Assume that per annum in the United States and 4 percent per annum in Switzerland Calculate your expected doir cost of buying SF3.622 if you choose to hedge vu cill option on SF (keep two decimals, 41500.291You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of CHF 11,000 for lodging, meals and transportation during your stay. As of today, the CHF/USD rate is 1.1017 and the three-month forward rate is 1.1125. You can buy the three-month call option on CHF with the exercise rate of 1.1000 for the premium of $0.024 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 4.7 percent per annum in the United States and 1.9 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.REQUIRED;(i) At what future spot exchange rate will you be indifferent between the forward and option market hedges?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 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…After finishing your degree, you decide to go on a post-graduation celebration trip to the UK. You leave with 8,000€ in your pocket. You want to exchange all these € for the U.K. pounds (GBP). Have a look at the WSJ table attached here and identify the following quotes: Spot rate on the EUR: Spot rate on the U.K. pound (GBP): What is the GBP/EUR cross rate? How many U.K. pounds (GBP) will you get for your Euros?On your post graduation celebratory trip you decide to travel to Munich, Germany, to Moscow, Russia. You leave Munich with 15,000 euros in your wallet. Wanting to exchange all of them for Russian rubles, you obtain the following quotes: Spot rate on the dollar/euro cross rate: $1.3214/E Spot rate on the ruble/dollar cross rate: Rbl30.96/$ What is the Russian ruble/euro cross rate? How many rubles will you obtain for your euros?
- An investor has $10m to invest and has the following options: 1) depositing it in a US bank account paying 3% annually, or 2) depositing it in a German bank, where the annual rate of interest is only 2%. Assume that today the current spot exchange rate for the Euro is given as $1.2750, while the 1-year Dollar-Euro forward rate is posted as 1.2995. a. Based on your knowledge of the relationship between interest rate differentials and the current dollar-euro forward premium or discount, in which country should the investor deposit her money? why? b. If you had the power to adjust the German interest rate, with all else constant, what rate would you establish, such that the investor is totally indifferent between depositing in either countries? Show your work and the logic behind it.On your summer study abroad program in Europe you stay an extra two weeks to travel from Paris to Moscow. You leave Paris with 2,000 euros (€ or EUR) in your belt pack. Wanting to exchange all of these for Russian rubles (R or RUB), you obtain the following quotes: 16,000.00 1.1046 61.17 Beginning your trip with euros Spot rate (USD-100 EUR or SE Spot rate (RUB-1.00 USD or RS) What is the Russian ruble to euro cross-over rate?Your foreign exchange trader in the United States has quoted the following rates for the Swiss Francs spot, 1-month, 3-month, and 6 month: $0.5965/72 50/61 127/143 242/267 a. If/you wished to buy 1,000,000 3-month Swiss Francs, how much would you pay in dollars? b. If you wanted to buy 1,000,000 6-month dollars, how much would you pay in Swiss Francs? .C. In New York, three month treasury bills yield 11% per annum, Using ask quotes only for simplicity, calculate the yields on Swiss three-month bills.