A conterence organizer in the New Lealand is planning a large international event in urich Switzerland. He is being paid NZ $1,000,000 by his New Zealand sponsors of the event and will need to make a payment of CHf500,000 for conference costs in 3-months' time. ( CHf is the symbol for Swiss francs). He has the following alternatives to protect himself from adverse changes in the value of the franc in terms of the New Zealand dollar. Alternative 1: Do nothing. Alternative 2: Enter into a forward contract with a bank. The forward price of the franc in terms of the New Zealand dollar is NZ $1.75 Alternative 3: Acquire 5CHf100,000 European style franc options. The following is information regarding the options (the quotes are in New Zealand dollar per Swiss Franc) Also assume the interest rate on a 3-month loan in Auckland (where the organizer is located) is 1% (for the 3-month period). The organizer believes that the franc could trade as low as NZ$1.56 and as high as $1.80 in 3 months' time. Given this information, please answer the following questions. Part 1: Suppose the organizer decides on Alternative 1. If, in three months, the franc trades at the low end, he earns dollars in profit and dollars in profit if the franc trades on the high end. Record your answers without a comma. Part 2: Suppose the orqanizer decides on Alternative 2.If, in three months, the franc trades at the low end, he earns dollars in profit and dollars in profit if the franc trades on the high end. Record your answers without a comma. Part 3: Suppose the orqanizer decides on Alternative 3. If, in three months, the franc trades at the low end, he earns dollars in profit and dollars in profit if the franc trades on the high end. Record your answers without a comma. A conterence organizer in the New Lealand is planning a large international event in urich Switzerland. He is being paid NZ $1,000,000 by his New Zealand sponsors of the event and will need to make a payment of CHf500,000 for conference costs in 3-months' time. ( CHf is the symbol for Swiss francs). He has the following alternatives to protect himself from adverse changes in the value of the franc in terms of the New Zealand dollar. Alternative 1: Do nothing. Alternative 2: Enter into a forward contract with a bank. The forward price of the franc in terms of the New Zealand dollar is NZ $1.75 Alternative 3: Acquire 5CHf100,000 European style franc options. The following is information regarding the options (the quotes are in New Zealand dollar per Swiss Franc) Also assume the interest rate on a 3-month loan in Auckland (where the organizer is located) is 1% (for the 3-month period). The organizer believes that the franc could trade as low as NZ$1.56 and as high as $1.80 in 3 months' time. Given this information, please answer the following questions. Part 1: Suppose the organizer decides on Alternative 1. If, in three months, the franc trades at the low end, he earns dollars in profit and dollars in profit if the franc trades on the high end. Record your answers without a comma. Part 2: Suppose the orqanizer decides on Alternative 2.If, in three months, the franc trades at the low end, he earns dollars in profit and dollars in profit if the franc trades on the high end. Record your answers without a comma. Part 3: Suppose the orqanizer decides on Alternative 3. If, in three months, the franc trades at the low end, he earns dollars in profit and dollars in profit if the franc trades on the high end. Record your answers without a comma
