Approximate value of exports

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Assume the following information: U.S. deposit rate for 1 year = 11% U.S. borrowing rate for 1 year = 12%

Swiss deposit rate for 1 year = 8%

Swiss borrowing rate for 1 year = 10%

Swiss forward rate for 1 year = $0.40

Swiss franc spot rate = $0.39

Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF800,000 in 1 year.

a. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a forward hedge?

b. Using the information above, what will be the value of these exports in 1 year in U.S. dollars given that the firm executes a money market hedge?

c. Which hedge will be best for the firm?

Reference no: EM132724277

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