Question

81. The forward rate of the Swiss franc is $.50. The spot rate of the Swiss franc is $.48. The following interest rates exist: U.S. Switzerland 360-day borrowing rate 7% 5% 360-day deposit rate 6% 4% You need to pay a sum of SF200,000 in 360 days. If you use a money market hedge, the amount of dollars you need in 360 days is:

(A) $101,904
(B) $101,923
(C) $98,769
(D) $96,914
(E) $92,307

Answer 1

invest = $96,914

so correct option is d. $96,914

Step-by-step explanation:

given data

forward rate of the Swiss franc = $.50

spot rate of the Swiss franc = $.48

pay a sum = SF200,000

solution

we know Borrow is here

Borrow =
`(SF200,000)/(1+.05)`

Borrow = SF190,476

and

when we convert it will be

Convert SF190,476 is

Convert = SF190,476 × $.48 = $91,428

so investment at 6 % is

Invest = 6 % of $91,428 + $91,428

invest = $5485.68 + $91,428

so

invest = $96,914

so correct option is d. $96,914