Consider a U. S. based company that imports goods from Switzerland. The company expects to make a payment for a shipment of goods in 120 days. Since the payment will be in Swiss francs, the U. S. based company wants to hedge against a rise in the value of the Swiss franc over the next 120 days. The U. S. risk free rate is 2% and the Swiss risk free rate is 3%, both on a continuously compounded basis. The spot price of the Swiss franc is USD 1.0112. Use the above information to answer question

1. Suppose that the Swiss franc forward contracts market price in USD is higher than its arbitrage-free price in USD. How would you arbitrage?

a) Buy the forward contract; Borrow Swiss francs; Convert Swiss francs into U. S. dollars at the spot exchange rate; Lend U. S. dollars

b) Sell the forward contract; Borrow U. S. dollars; Convert U. S. dollars into Swiss francs at the spot exchange rate; Lend Swiss francs

c) Buy the forward contract; Borrow U. S. dollars; Convert U. S. dollars into Swiss francs at the spot exchange rate; Lend Swiss francs