Question
A company has a known cash payment of SF 50 million to be made to a Swiss supplier in 100 days. The company wishes to
A company has a known cash payment of SF 50 million to be made to a Swiss supplier in 100 days. The company wishes to fix or lock in the nominal dollar price of this payment using currently available rates. The spot rate available to the company is SF2.500-2.520/USD, the forward swap rate for maturity in 100 days is -0.045: -0.035, and the company faces a dollar interest rate of 10-13% and a SF interest rate of 4-7%. Given this information, what is the smallest dollar price on its SF50 million that the co. can lock in with certainty? Explain the procedure the company will follow to obtain this price. Does the synthetic forward rate equal the quoted rate? Is an arbitrage opportunity available? Why or why not?
Please using both way to solve this question ( forward contract and money market), thanks in advance!
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