3. Baltimore Machinery sold a drilling machine to a Swiss firm and gave the Swiss client a choice of paying $10,000 or SF 15,000 in three months.

(1) What is the best way for Baltimore Machinery to deal with its foreign currency exposure?

(2) In the example, Baltimore Machinery effectively gave the Swiss client a free option to pay in $ or in SF. If the spot rate turns out to be $0.62/SF in three months, what is the value of this free option for the Swiss client?

(3) At what future spot rate will the Swiss firm choose to pay with $?