Seiko is intending to increase its sales. A total of 20 000 Swiss watches will be purchased for 2 million francs at today's spot rate. The company's financial manager has noted the following current spot and forward rates:
|
ITEM
|
USD/Swiss Franc
|
Swiss Francs/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, the financial manager agrees to purchase 20 000 more watches in 3 months at the same price of 2 million Swiss francs.
2.1 What is the cost of the watches in USD, if purchased at today's spot rate?
2.2 What is the cost in dollars of the second 20 000 batch if payment is made in 90 days and the spot rate at that time equals today's 90-day forward rate?
2.3 If the exchange rate is 0.50 Swiss franc per dollar in 90 days, how much will the finance manager have to pay (in dollars) for the watches?