Assume that Parker Company will receive SF200,000 in 360 days. Assume the following interest rates:

U. S.

Switzerland

360-day borrowing rate
7%

5%

360-day deposit rate
6%

4%

Assume the forward rate of the Swiss franc is $.50 and the spot rate of the Swiss franc is $.48. If Parker Company uses a money market hedge, it will receive in 360 days.

a.
$92,307

b.
$96,914

c.
$101,904

d.
$101,923

e.
$98,769

b.  $96,914

Explanation:

360-day borrowing rate = 5%

spot rate = 0.48

360-day deposit rate  = 6%

Borrow at the rate of 5% to get

SF200,000/1.05 = $190,476.19

Convert at the spot rate of $0.48 to get

190,476.19*0.48 = $91,428.57

Invest at the interest rate of 6% to get

91,428.57/1.06 = 96,914.28

Therefore, Parker Company will receive $96,914 in 360 days.

scientific laws are the result of testing theories and proving them to be facts.