1. Suppose the annualized interest rate on 180-day SFr deposits is 4.01%-3.97%, meaning that SFr can be borrowed at 4.01% and lent at 3.97%. At the same time, the annualized interest rate on 180-day CAD deposits is 8.01%-7.98%. Spot and 180-day forward quotes on CAD are $0.6433-42/SFr and $0.6578-99/SFr, respectively. You, as the financial manager of Air Canada, are trying to decide how to go about hedging SFr80 million in ticket sales receivable in 180 days.
   1. If hedging with forward contract, what would you do? What is the hedged value of Air Canadas ticket sales?
   2. You may also want to consider the money market (by borrowing and lending) to lock in a future dollar value of Air Canadas ticket sales. What would you do if this method is used? What is the hedged value of Air Canada's ticket sales in this case?
   3. Compare the strategies used in a) and b). Which strategy is preferable in this problem?
   4. Suppose the expected spot rate in 180 days is $0.67/SFr. Should you hedge? What factors should enter into your decision?
   5. Is there an arbitrage opportunity here? If there is an arbitrage opportunity, describe it.