Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects...
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Finance
Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF700, 000 in 1 year.
Suppose you have money market and forward hedge opportunities available.
a. (5 pts.) If you hedge using money market, what will be the approximate value of your exports in 1 year in U.S dollars?
b. (5 pts.) What will be the approximate value of your exports in 1 year in U.S dollars if you use forward hedge?
c. (5 pts.) Which method do you use? Why?
U.S. deposit rate for 1 year II 11.5% U.S. borrowing rate for 1 year = 12% Swiss deposit rate for 1 year = 9% Swiss borrowing rate for 1 year = 10% Swiss forward rate for 1 year = $.40 Swiss franc spot rate = $.39
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