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Starbucks Corp., a US company, has a plan to build 30 cafes in Switzerland. Starbucks has hired O’Neill Construction, a Swiss company, to build these cafes, at a cost of CHF 60,000,000. The payment (in the Swiss currency) is due in nine (9) months.

Starbucks is given the following information:

Spot rate = CHF 1.54 / USD

9-month forward rate = CHF 1.49 / USD

Interest rate in Switzerland = 12% per year

Interest rate in U.S.A. = 6% per year

Starbucks’s own forecast suggests that the spot rate 9 months from now is most likely CHF 1.55 / USD. If the firm uses the unhedged position, how much USD will it need in 9 months?

A. USD38,961,000

B. USD 93,000,000

C. USD 40,268,000

D. USD 38,710,000

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92753700

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