Boisjoly Watch Imports has agreed to purchase 18,000 Swiss watches for 1 million
ID: 2655872 • Letter: B
Question
Boisjoly Watch Imports has agreed to purchase 18,000 Swiss watches for 1 million francs at today's spot rate. The firm's financial manager, James Desreumaux, has noted the following current spot and forward rates:
On the same day, Desreumaux agrees to purchase 18,000 more watches in 3 months at the same price of 1 million Swiss francs.
What is the price of the watches, in U.S. dollars, if purchased at today's spot rate? Round your answer to the nearest dollar.
$
What is the cost, in dollars, of the second 18,000 batch if payment is made in 90 days and the spot rate at that time equals today's 90-day forward rate? Round your answer to the nearest dollar.
$
If the exchange rate for is 0.45 Swiss francs per dollar in 90 days, how much will Desreumaux have to pay (in dollars) for the watches? Round your answer to the nearest dollar.
U.S. Dollar/Franc Franc/U.S. Dollar Spot 1.6510 0.6057 30-day forward 1.6500 0.6061 90-day forward 1.6460 0.6075 180-day forward 1.6380 0.6105Explanation / Answer
Soln : Total value of 18000 swiss watches = 1 million francs
Also, spot rate given as USD/Franc = 1.6510
1 million francs at spot rate = 1*1.6510 = $1.6510 million or we can say that $91.72 per watch is the cost.
In case if the payment is made in $ after 90 days of 1 million francs, it will be = 1*90 day forward rate = 1*1.6460 million = $1.6460 million to pay.
Now , in case if 1 USD = 0.45 francs
in that case 1 million francs = USD 1million * 1/0.45 = $2.22 million has to be paid by the Desreumaux in dollars.