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Calculate your expected dollar cost of buying

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Question - You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of SF 7,834for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.77/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.65/SF for the premium of $0.04 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 8 percent per annum in the United States and 4 percent per annum in Switzerland.

Calculate your expected dollar cost of buying SF7,834 if you choose to hedge via call option on SF?

Reference no: EM133008821

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