Starbucks Corp., a US company, has a plan to build 30 cafes in Switzerland. Starbucks has hired O’Neill Construction, a Swiss company, to build these cafes, at a cost of CHF 60,000,000. The payment (in the Swiss currency) is due in nine (9) months.
Starbucks is given the following information:
Spot rate = CHF 1.54 / USD
9-month forward rate = CHF 1.49 / USD
Interest rate in Switzerland = 12% per year
Interest rate in U.S.A. = 6% per year
Starbucks’s own forecast suggests that the spot rate 9 months from now is most likely CHF 1.55 / USD. If the firm uses the unhedged position, how much USD will it need in 9 months?
USD 38,710,000
USD 40,268,000
USD 93,000,000
USD38,961,000