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Calculate expected dollar cost of buying

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You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur a total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy a three-month call option on SF with the exercise rate of $0.66/SF for a premium of $0.09 per SF. Assume that your expected future spot exchange rate is $0.61/SF. The three-month interest rate is 0.05 per annum in the United States and 0.03 per annum in Switzerland. Calculate your expected dollar cost of buying SF5,000 if you choose to hedge via the call option on SF.

Reference no: EM132689013

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