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linda_us
linda_us, Master's Degree
Category: Multiple Problems
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This question is based on a question by Eun, Resnick and Sabherwal in

Customer Question

This question is based on a question by Eun, Resnick and Sabherwal in International Finance, 6th edn, Global Edition: McGraw Hill.Consider a US-based company that exports goods to Switzerland. The US company expects to receive payment on a shipment of goods in three months. Because the payment will be in Swiss francs, the US company wants to hedge against a decline in the value of the Swiss franc over the next three months. The US risk-free rate is 2%, and the Swiss risk-free rate is 4%. Assume that interest rates remain fixed over the next six months. The current spot rate is $0.9873.
a.)Indicate whether the US company should use a long or short forward contract to hedge currency risk.
b.)Calculate the no-arbitrage price at which the US company could enter into a forward contract that expires in three months.
c.) It is now 30 days since the US company entered into the forwardcontract. The spot rate is $0.9399. Interest rates are the same as before. Calculate the value of the US c
Submitted: 7 months ago.
Category: Multiple Problems
Customer: replied 7 months ago.
part c.) It is now 30 days since the US company entered into the forward
contract. The spot rate is $0.9399. Interest rates are the same as
before. Calculate the value of the US company’s forward position.
Expert:  Manal Elkhoshkhany replied 7 months ago.
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