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XX corp is a robotics manufacturer based in the US, has won a bid to deliver equipment to a Swiss automobile company. the bid is SF8 million. the firm will receive the entire SF 8 million in 6 months from now. the present spot rate is SF8.00/S and six-month forward rate is SF 8.20/$ the borrowing rate in US is 12% and 17 in Swiss. the cost of capital is 14% p.a. (an international finance question)
1) Explain the various ways in which this firm could cover its foreign exchange exposure.
2) What is the break-even cost of capital have to be for them to be indifferent between forward hedge and money market hedge?
Show all steps and explanations.
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