Question
Towson Company has imported machinery worth SF625,000 from a Swiss company. The sale is denominated in SF on a six-month open account basis. The US
Towson Company has imported machinery worth SF625,000 from a Swiss company. The sale is denominated in SF on a six-month open account basis. The US interest rate is 10% per annum, while the interest rate in Swiss is 15% per annum. The current spot rate is $.50/SF, and the forward SF sells at $.45/SF. The finance staff of Towson Company forecasts that the SF will drop to $.46/SF over the next six months. The option premium is $300 per contract (SF62,500 per contract) E=$.47/SF. Identify the type the option contract (call or put). Evaluate UH, FH, MMH, and Options. Which one do you recommend? why?
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