Assume the following information:

U.S. deposit rate for 1 year=11%
U.S. borrowing rate for 1 year=12%
Swiss deposit rate for 1 year=8%
Swiss borrowing rate for 1 year=10%
Swiss forward rate for 1 year=$.40
Swiss franc spot rate=$.39

Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF600,000 in 1 year.

Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a forward hedge?
A)$234,000
B)$238,584
C)$240,000
D)$236,127

Question

Assume the following information:

U.S. deposit rate for 1 year=11%
U.S. borrowing rate for 1 year=12%
Swiss deposit rate for 1 year=8%
Swiss borrowing rate for 1 year=10%
Swiss forward rate for 1 year=$.40
Swiss franc spot rate=$.39

Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF600,000 in 1 year.

Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a forward hedge?
A)$234,000
B)$238,584
C)$240,000
D)$236,127

Quizplus · Accepted Answer

The firm will use the forward rate to convert the SF600,000 to U.S. dollars. At a forward rate of $0.40 per Swiss franc, the value of the exports in 1 year will be SF600,000 * $0.40 = $240,000.

Assume the Following Information