Foreign Exchange Risk Management:

Electronix, Inc., of Seattle, Washington, sold internet protocol systems to a Swiss corporation for SF3,000,000 with payment due in three months.The following quotes are available:

Three-month interest rate (borrowing or investing) on U.S. dollars:6.00% per annum

Three-month interest rate (borrowing or investing) on Swiss francs:8.00% per annum

Spot exchangerate:SF1.6000/$

Three-month forecasted spot exchangerate:SF1.6000/$

Three-month forward exchangerate:SF1.6120/$

Three-month options from Bank ofAmerica:

Call option on SF3,000,000 at exercise price of SF1.6000/$ and a 1% premium

Put option on SF3,000,000 at exercise price of SF1.6000/$ and a 3% premium

What are the costs and benefits of the following alternatives: leaving it open, forward market hedge, money market hedge and option market hedge?Which is the best alternative?

(Hint: You need to consider the interest cost of the option premium. You also need to calculate the expected cash flows if there is no hedging.Please type in the following box.)