Question
Acme Corporation, located in the United States, purchased inventory from a Swiss firm and payment of SF400 million is due in one year. The current
Acme Corporation, located in the United States, purchased inventory from a Swiss firm and payment of SF400 million is due in one year. The current spot rate is SF.96/USD and the one-year forward rate is SF.93/USD. The annual interest rate is 1.5 percent in Switzerland and 2 percent in the United States. Acme can also buy a one-year option on Swiss francs at the strike price of $1.08/SF for a premium of $0.002 per Swiss franc.
Assume that the forward rate is the best predictor of the future spot rate. What is the expected dollar cost at the time of paymentif Acme decides to hedge using an option contract? Show your calculations. (4 points)
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