On January 2, 2015, SWATCH expects to ship 700,000 watches from its plant in Swi

Question

On January 2, 2015, SWATCH expects to ship 700,000 watches from its plant in Switzerland to US, which it will sell through its US dealers on 270-day terms at $85.00 each. Thus SWATCH will receive payment from its dealers on September 28th, 2015. Assuming that SWATCH needs to cover its expenses in Switzerland and thus wants to hedge its SF exposure using a forward contract with a Swiss bank in the US, 1. what is the minimum amount of SF they should receive on September 28th, 2015 given the nine month forward rate for one US dollar in terms of SF is 0.988916 SF/$? 2 What are two other ways SWATCH might hedge their SF/US$ exposure?

Please answer fully and with a good explanation. Not just equation and answer. Please ignore the previous post.

Explanation / Answer

Exposure=700000*$85=$59500000.00

Exposure is receivable of $595 lakh at 9 month hence and wants to hedge its receivable risk of currency fluctuation through forward contract.

Assume Forward Rate 1$=28SF(Banker Buying rate) because FR is not given in Ques.

Receipt at 9 month time under Forward cover =$59500000.00*28

                                                                        =SF16660 Lakh

SWATCH can also use money market operation to hedge risk.

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