Money Market Versus Put Option Hedge

foreign market
June 30, 2019
In Milestone
June 30, 2019

Money Market Versus Put Option Hedge. Narto Co. (a U.S. firm) exports to Switzerland and expects to receive 500,000 Swiss francs in one year. The one-year U.S. interest rate is 5% when investing funds and 7% when borrowing funds. The one-year Swiss interest rate is 9% when investing funds, and 11% when borrowing funds. The spot rate of the Swiss franc is $.80. Narto expects that the spot rate of the Swiss franc will be $.75 in one year. There is a put option available on Swiss francs with an exercise price of $.79 and a premium of $.02. Determine the amount of dollars that Narto Co. will receive at the end of one year if it implements a money market hedge.

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