You plan to visit Geneva, Switzerland, in three months to attend an international business conference. You expect to inc

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You plan to visit Geneva, Switzerland, in three months to attend
an international business conference. You expect to incur a total
cost of SF7,200 for lodging, meals, and transportation during your
stay. As of today, the spot exchange rate is $0.60/SF and the
three-month forward rate is $0.74/SF. You can buy the three-month
call option on SF with an exercise price of $0.75/SF for the
premium of $0.05 per SF. Assume that your expected future spot
exchange rate is the same as the forward rate. The three-month
interest rate is 8 percent per annum in the United States and 5
percent per annum in Switzerland.
a. Calculate your expected dollar cost of
buying SF7,200 if you choose to hedge by a call option on SF
b. Calculate the future dollar cost of
meeting this SF obligation if you decide to hedge using a forward
contract.
c. At what future spot exchange rate will
you be indifferent between the forward and option market
hedges? (Do not round intermediate calculations. Round
your answer to 5 decimal places.)