You plan to visit Geneva, Switzerland, in three months to attend an international business conference. You expect to incur a total cost of SF6,200 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three- month forward rate is $0.69/SF. You can buy the three-month call option on SF with an exercise price of $0.70/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. a. Calculate your expected dollar cost of buying SF6,200 if you choose to hedge by a call option on SF. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Total expected cost b. Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. Future dollar cost c. At what future spot exchange rate will you be indifferent between the forward and option market hedges? (Do not round intermediate calculations. Round your answer to 5 decimal places.) Future spot exchange rate

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.