Question 1

Viner Co. is a U.S.-based MNC that will receive 2,000,000 Swiss francs in 6 months. It could obtain a forward contract to sell SF2, 000,000 in 6 months. The 6-month forward rate is 1$=0.71Swiss francs Viner can borrow funds denominated in Swiss francs at a rate of 3 percent over a 6-month period. Viner Co. does not need any funds to support existing operations, it can convert the Swiss francs that it borrowed into dollars at spot rate of 1$=0.70 Swiss francs . Then the dollars can be invested in the money market at interest rate of 2 percent interest over a 6-month period. Advice Viner company the best hedging method to use between forward contract and money market hedge (5 marks)