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| Teaching Since: | May 2017 |
| Last Sign in: | 432 Weeks Ago, 1 Day Ago |
| Questions Answered: | 66690 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Comparison of Hedging Techniques You own a U.S. exporting firm and will receive 10 million Swiss francs in 1 year. Assume that interest parity exists. Assume zero transaction costs. Today, the 1-year interest rate in the United States is 7 percent, and the 1-year interest rate in Switzerland is 9 percent. You believe that today’s spot rate of the Swiss franc (which is $.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 a money market hedge,
■ hedge with at-the-money put options on Swiss francs with a 1-year expiration date, or
■ remain unhedged. Which alternative will generate the highest expected amount of dollars? If multiple alternatives are tied for generating the highest expected amount of dollars, list each of them.
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