Mike plans to visit Geneva, Switzerland in three months to attend a convention. He expects to incur a total Swiss franc cost of SF5,000 for lodging, meals and

transportation during his stay. As of today, the spot exchange rate is $1.10/SF and the three-

month forward rate is $1.13/SF. He can buy the three-month call option on SF with the exercise

rate of $1.14/SF for the premium of $0.05 per SF. Assume that his expected future spot exchange

rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in

US and 4 percent per annum in Switzerland.

1)

Calculate the future USD cost of meeting this SF obligation if you decide to hedge

using a forward contract.