You start working for a US company based in Cleveland. Your company has export-import transactions with a few businesses in Switzerland and you handle all such international transactions. Your company is a valued client of a major local bank and the bank sends the exchange rates daily to your office via email. You pull out the bills due for collection (accounts receivable) and payments (accounts payable) today and start reading the following outright quotes for Swiss Francs against the dollar (CHF/$) from your bank.

CHF / $

Rates Bid Ask

Spot 1.6075 1.6085

1 M Fwd 1.6085 1.6100

3 M Fwd 1.6089 1.6107

6 M Fwd 1.6095 1.6115

Is the Swiss franc (CHF) poised to become strong or weak against the dollar between now and future?

What would you receive if you sold CHF 1,000,000 million spot?

Are you an exporter or importer in this transaction?

What would it cost for you to purchase CHF 500,000 three-months forward?

Are you an exporter or importer in this transaction?

Using mid-rates, calculate the annualized premium or discount for Swiss Francs against the dollar for 3-Month Forward. Use negative sign for discount

QUESTION 2

1.Your family is planning a ski vacation to Mt. Blanc inChamonix, France, one year from now. Your family is based in the U.S. and your homecurencyis the US dollar.Since this is a foreign currency expenditure, your parents have entrusted the budgeting in your expert hands.

The chateau's owner wishes to preserve his real income against both inflation and exchange rate changes. So, the present monthly rent of 8,000 will be adjusted upwards or downwards for any change in the French cost of living between now and then.

You are basing your budgeting on purchasing power parity (PPP). French inflation is expected to average at 3.5000% for the coming year, while the inflation in the U.S. is expected to be at 2.5000%. The current spot rate is $1.1840/.

1.How many dollars will you need for your family's month-long vacation if your family were departing now? $

2.What is the expected exchange rate between the dollar and theeuroone year hence? $/

3.How manyeurosyou will need one year hence for your month-long vacation?

4.What will be the cost of your vacation in US dollars as per the estimated exchange rate next year? $

5.By what percent will the dollar cost go up between now and next year? Show with calculation.%

6.Why will your dollar cost go up?