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You plan to visit Geneva, Switzerland, in three months to attend an international business conference....

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Finance

You plan to visit Geneva, Switzerland, in three months to attend an international business conference. You expect to incur a total cost of SF8,800 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 $0.82/SF. You can buy the three-month call option on SF with an exercise price of $0.83/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 8 percent per annum in the United States and 5 percent per annum in Switzerland. a. Calculate your expected dollar cost of buying SF8,800 if you choose to hedge by a call option on SF. (Do not round intermediate calculations. Round your answer to 2 decimal places.) 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? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

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