Question

# The forward rate of the Swiss franc (SF) is \$0.50. The spot rate of the Swiss...

The forward rate of the Swiss franc (SF) is \$0.50. The spot rate of the Swiss franc is \$0.48. The following interest rates exist:

 U.S. Switzerland 360-day borrowing rate 7% 5% 360-day deposit rate 6% 4%

Kriner Inc. needs to purchase SF200,000 in 360 days. Determine the amount of U.S. dollars needed in 360 days if Kriner Inc. uses a money market hedge.

\$96,914

\$101,904

\$101,923

\$92,307

\$98,770

Amount to pay in SF in 360 days = SF200,000

Amount of SF to deposit today = Amount to pay in SF in 360 days / (1 + SF deposit rate)

Amount of SF to deposit today = SF200,000 / (1 + 4%) = SF192,308

\$ required to purchase SF192,308 today =  SF192,308 * spot rate

\$ required to purchase SF192,308 today =  SF192,308 * \$0.48 = \$92,308

\$92,308 is borrowed today, and repaid after 1 year.

\$ to repay after 1 year = \$92,308 * (1 + \$ borrowing rate)

\$ to repay after 1 year = \$92,308 * (1 + 7%)

\$ to repay after 1 year = \$98,770