Question

Q1. A U.S.-based importer, Zarb Inc., makes a purchase of crystal glassware from a firm in

Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms

of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward

market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the

90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.6180 francs, how much will

the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure? 

Q2.Suppose 6 months ago a Swiss investor bought a 6-month U.S. Treasury bill at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.4200 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.3440 Swiss francs per dollar. What is the nominal annual rate of return to the Swiss investor?

Answer 1

1.

2.