Generate the highest expected amount of dollars

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Reference no: EM131983224

You own a US exporting firm and will receive 10 million Swiss francs in 1 year. Assume 0 transaction costs. Today, the 1 year interest rate in the US is 7%, and the 1-yr interest rate in Switzerland is 9%. You believe that today’s spot rate of the Swiss franc (which is $0.85) is the best predictor of the spot rate 1 year from now. You consider these alternatives:

- Hedge with 1 year forward contract

- Hedge with money market hedge

- Hedge with at-the-money put options on Swiss francs with a 1 year expiration date

- Remain unhedged

Which alternative will generate the highest expected amount of dollars?

Reference no: EM131983224

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