22. TEK-Swiss Dividend Payable. TEK's European subsidiaries are formally owned by a holding com- pany, TEK-Switzerland. Thus, the subsidiaries pay dividends to the Swiss holding company, which in turn pays dividends to TEK-Beaverton. TEK has declared a dividend of 5 million Swiss francs payable in three months from Switzerland to TEK- Beaverton. If TEK-Beaverton wishes to hedge this transaction exposure it could utilize the following quotes from Swiss Bank Corporation:

What are the costs of each alternative for hedging the dividend payable? What are the risks of each alternative? Which alternative should TEK choose? Explain your assumption about TEK's motivation in choosing your suggested alternative.

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Spot rate: Expected spot rate in three months: Three-month forward rate: Three month Swiss franc interest rate. Three-month dollar interest rate: Three-month put option on SF @ strike price of Seri.25/5 TEK's weighted average of capital: SFn1.2462/$ SF11.2200/$ SF11.2429/$ 3.75% per year 4.00% per year $0.0150/SFr premium 9.80%