11. Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for $1 mi

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

PLEASE SHOW WORK.

Explanation / Answer

1. 1 SFr = $.6028

If watches are purchased for 1 million SRf, its value in $ = 1000000 / .6028 = $1658925

2. 90 day forward rate, which is also the then spot rate = 1SFr = .6075

If watches are purchased for 1 million SRf, its value in $ = 1000000 / .6075 = $1646091

3. If the exchange rate for is 0.50 Swiss francs per dollar in 90 days, 1SFr = $0.50

Value of watches in $ = 1000000 / .50 = $2000000

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