Timberland: Swiss Franc and Forward Rate
FINAL EXAMINATION INTERNATIONAL BUSINESS 491-452
Due Saturday May 10, 2014
This exam has been posted on the class website on April 25th, 2014 and is due back as an e-mail attachment in Microsoft Word or pdf format or by fax (914-923-1416) by 11:55PM on Saturday, May 10, 2014.
Late submissions will be downgraded!
This is an open book test and you may discuss an answer with other students. But you must submit your own answer in your own words! Further any information taken from the text or other sources must be paraphrased.
That is, it also must be put into your own words. No quotes! Warning! Common or group answers are not accepted and will receive zero credit.
Read The Questions Carefully and Be Sure to Address All the Points Raised
Answer All 8 questions (100 points)
Short Answer 1-7 [10 points each and each about 1/2 – ¾ page double-spaced]:
1. If the spot rate for the Swiss Franc is that 1.15 SF is equal to 1 US $, and the annual interest rate on fixed rate one-year deposits of SF is 1.5% and for US$ is 2.5%, what is nine-month forward rate for one dollar in terms of SFs? Assuming the same interest rates, what is the 18-month forward rate for one SF in US$s? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates, in this case will the SF get stronger or weaker against the dollar? What does this indicate about the market’s inflation expectations for Switzerland as compared to the US?
2. On January 2d, 2014, Nestle expects to ship 1,000,000 boxes of Nestle Crunch Chocolate from its Swiss plant to the US that it will sell through retail outlets on 270-day terms at 150 SF each. So Nestle will receive payment from these outlets on September 28th, 2014. Assuming that Nestle needs to cover its expenses in Switzerland and thus wants to hedge its SF/US$ exposure using a forward contract with a Swiss bank, what is the minimum amount of Swiss Francs they should receive on
Due Saturday May 10, 2014
This exam has been posted on the class website on April 25th, 2014 and is due back as an e-mail attachment in Microsoft Word or pdf format or by fax (914-923-1416) by 11:55PM on Saturday, May 10, 2014.
Late submissions will be downgraded!
This is an open book test and you may discuss an answer with other students. But you must submit your own answer in your own words! Further any information taken from the text or other sources must be paraphrased.
That is, it also must be put into your own words. No quotes! Warning! Common or group answers are not accepted and will receive zero credit.
Read The Questions Carefully and Be Sure to Address All the Points Raised
Answer All 8 questions (100 points)
Short Answer 1-7 [10 points each and each about 1/2 – ¾ page double-spaced]:
1. If the spot rate for the Swiss Franc is that 1.15 SF is equal to 1 US $, and the annual interest rate on fixed rate one-year deposits of SF is 1.5% and for US$ is 2.5%, what is nine-month forward rate for one dollar in terms of SFs? Assuming the same interest rates, what is the 18-month forward rate for one SF in US$s? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates, in this case will the SF get stronger or weaker against the dollar? What does this indicate about the market’s inflation expectations for Switzerland as compared to the US?
2. On January 2d, 2014, Nestle expects to ship 1,000,000 boxes of Nestle Crunch Chocolate from its Swiss plant to the US that it will sell through retail outlets on 270-day terms at 150 SF each. So Nestle will receive payment from these outlets on September 28th, 2014. Assuming that Nestle needs to cover its expenses in Switzerland and thus wants to hedge its SF/US$ exposure using a forward contract with a Swiss bank, what is the minimum amount of Swiss Francs they should receive on