A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot rate is $.6698/SFr and the 90 day forward rate is $.6776/SFr. 90 day call option on SFr: 90 day put option on SFr: strike=$.68, premium=$.0096 strike=$.68, premium=$.0105 Interest rates 90 day deposit rate 90 day borrowing rate US 3% 3.2% Switz. 3% 3.2% Possible spot rate in 90 days Spot Probability $.65 10% $.67 20% $.69 70% Calculate the expected dollar cost of the payable for each of the following: (1) FORWARD HEDGE (2) MONEY MARKET HEDGE (3) OPTION HEDGE(S) (4) REMAINING UNHEDGED Should the firm hedge? If so, how? Consider both cost and risk in your decision