Local Swiss CFO of The Company Assignment

Assignment Task

Please explain all your steps and show all the calculations.

1. A local Swiss company got its first order from US and expects to be shipping the equipment in 4 months upon the receipt of the payments of $25m. The current spot exchange rate is USDCHF = 0.92. The CFO of the company went to BCV and got the following rates there:

4 month forward rate USDCHF = 0.965

• Interest rate in CHF = 1%
• Interest rate in USD = 5%
• Interest rates are annualized

As the company operates in Swiss francs, the manager would like to consider hedging the exposure to US dollars. What options he has? Is Swiss franc is expected to appreciate or depreciate?

Explain clearly. If in 4 month the spot exchange rate is 0.955, what was the best option in the hindsight?

2. Maersk, a Norwegian company, is the largest container ship and commercial vessel operator in the world. Because it operates on the global market, it considers the U.S. dollar as its functional currency, not the Norwegian krone. The company has a lot of payments and funds turnover and is an active trader and participant on FX markets.

Karlson is a currency trader for Maersk, and has immediate use of either $35 million (or the Norwegian krone equivalent) for 3 months. He is faced with the following market rates, and wonders whether he can make some arbitrage profits in the coming 90 days. Could you help him?

USDNOK = 9.01

• Forward rate 90 days for USDNOK =9.15
• 3 months USD interest rate = 4.500%
• 3 month NOK interest rate = 4.600%
• The interest rates are annualized.

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