Problem:
A risk-sharing agreement between a Swiss watch manufacturer and a U.S. retailer sets the boundaries of the $/Sfr exchange rate used in transactions between them at 0.75 - 0.85. Any deviations in spot rate from this range are to be shared equally between the two parties. If the U.S. retailer stands to pay a Sfr1,000,000 invoice when the spot rate is 0.90,
Required:
How much does the company benefit from the existence of the risk-sharing agreement?
A) There will be no benefits under this scenario.
B) $25,000.
C) $50,000.
D) $200,000.