(17–11)

Spot and Forward Rates Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for 1 million francs at today’s spot rate. The firm’s financial manager, James Desreumaux, has noted the following current spot and forward rates:

U.S. Dollar/Franc Franc/U.S. Dollar Spot 1.6590 0.6028 30-day forward 1.6540 0.6046 90-day forward 1.6460 0.6075 180-day forward 1.6400 0.6098 On the same day, Desreumaux agrees to purchase 15,000 more watches in 3 months at the same price of 1 million francs.

a. What is the price of the watches, in U.S. dollars, if purchased at today’s spot rate?

b. What is the cost, in dollars, of the second 15,000 batch if payment is made in 90 days and the spot rate at that time equals today’s 90-day forward rate?

c. If the exchange rate for the Swiss franc is 0.50 to $1 in 90 days, how much will Desreumaux have to pay (in dollars) for the watches?