11. Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for $1 mi
ID: 2766155 • Letter: 1
Question
11. Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for $1 million francs at today's spot rate. The firm's financial manager, James D, has noted the following current spot and forward rates:
USD/ SFr SFr/USD
Spot 1.6590 0.6028
30- day forward 1.6540 0.6046
90- day forward 1.6460 0.6075
180 day forward 1.6400 0.6098
On the same day, he agrees to purchase 15,000 more watches in 3 months at the same price of 1 million Swiss francs.
1. What is the cost of the watches in USD, if purchased at today's spot rate?
2. What is the cost in dollars of the second 15,000 batch if payment is made in 90 days and the spot rate at that time equals today's 90 day forward rate?
3. If the exchange rate for is 0.50 Swiss francs per dollar in 90 days, how much will James D have to pay (in $) for the watches?
Answers 1. $1,658; 925
2. $$1,646,091
3. $2,000,000
Explanation / Answer
1. What is the cost of the watches in USD, if purchased at today's spot rate?
1,000,000 Fr*1.6590 US dollar/Franc = $1,659,000
2. What is the cost in dollars of the second 15,000 batch if payment is made in 90 days and the spot rate at that time equals today's 90 day forward rate?
1,000,000Fr*1.6460 US dollar/Franc(90-Day forward) =$1,646,000
3. If the exchange rate for is 0.50 Swiss francs per dollar in 90 days, how much will James D have to pay (in $) for the watches?
Franc/US dollar = 0.50
US dollar/Franc = (1/.05)= 2
1,000,000 fr*2 (US dollar/Franc) = $2,000,000
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