Your firm is an Italian exporter of bicycles.You have sold an order to a Swiss firm for SFr.2,000,000 worth of bicycles.Payment from the customer (in Swiss francs) is due in 12 months.Use a money market hedge to redenominate this one-year franc denominated receivable into a euro-denominated receivable with a one-year maturity.
| Contract Size | Country | U.S. $ equiv. | Currency per U.S. $ | interest rates | APR |
|---|---|---|---|---|---|
| £ 10,000 | Britain (pound) | 1.9600 | £ 0.5102 | ||
| 12 months forward | 2.0000 | £ 0.5000 | |||
| € 10,000 | Euro | 1.5600 | € 0.6410 | i$ = | 1% |
| 12 months forward | 1.6000 | € 0.6250 | i€ = | 2% | |
| SFr. 10,000 | Swiss franc | 0.9200 | SFr. 1.0870 | i£ = | 3% |
| 12 months forward | 1.0000 | SFr. 1.0000 | iSFr. = 4 | 4% |
A) €1,116,826.92
B) €1,250,000
C) €1,134,122.29
D) €1,156,804.73
Correct Answer:
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