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Suppose it is Thursday, September 16 , and Origine, an importer of Swiss watches to Untied States, has an account payable of CH ' F5,000
Suppose it is Thursday, September 16 , and Origine, an importer of Swiss watches to Untied States, has an account payable of CH ' F5,000 due on Wednesday, December 15. The following data are available.. Spot rate: $07142/CHF. 90 -day forward rate $0.7144/CHF U.S. dollar 90-day interest rate: 3.75% p.a. / Swiss Franc (CHF), 90-day interest rate: 5.33% p.a. Options data for.December contract, \$/CHF Strike Premium Call Premium Put Premium 0.7200.01550.240 Required: i) Determine the total cost in dollars of hedging the payable using a forward contract. ( 4 marks) ii) Determine the maximum cost of hedging with an option contract. (6 marks) iii) On axes representing future exchange rates ( x-axis) and total costs ( y-axis). Show the graphs representing following strategies adopted by Origine . a). A do-nothing strategy _ (1 mark) b) Forward contract hedge strategy (2 marks) c) An option contract hedge strategy
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