Ask Question
BusinessBusiness
17 January, 11:49

You are an American real estate mogul. You have just purchased a chain of boutique hotels in the Swiss Alps for CHF 35,000,000. You have financed the purchase with a loan from a Swiss bank in CHF. How can you hedge your currency risk? Describe the hedge and the cashflows in detail. Assume that all payments are annual, and the current exchange rate is CHF 1/USD.

+5
Answers (1)
  1. 17 January, 12:47
    0
    Since the investor is from the US and purchases a hotel in Swiss Alps for CHF 35,000,000, the investor will have to pay interest in the currency CHF.

    In order to hedge the currency risk the investor can go for SWAPS where he will recieve the interest in CHF and pay in USD.

    Cash flow:

    Notional amount = $35,000,000

    exchange rate = CHF 1 / USD

    Bid price is 5.25% for CHF hence when an investor goes into swap contract then he will get 5.25%. Similarly for USD when investor pays in USD then he will have to pay the ask rate of 8.85%.

    The investor will pay 8.85% interest rate in USD and get the 5.25% interest rate in CHF. This interest can be used to pay the interest on loan
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You are an American real estate mogul. You have just purchased a chain of boutique hotels in the Swiss Alps for CHF 35,000,000. You have ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
Dan and Emily have decided to start a new home inspection business. They have both worked in this industry as sole proprietors, but now, they want to join forces to share in the management of the business.
Answers (1)
In the Bank Location problem, four of the twenty counties were on adjacent to Pennsylvania. (Counties 1, 14, 15, 16.
Answers (1)
John bought 1,000 shares of Intel stock on October 18, 2015, for $30 per share plus a $750 commission he paid to his broker. On December 12, 2019, he sells the shares for $42.50 per share. He also incurs a $1,000 fee for this transaction. a.
Answers (1)
Did the provision for interest on late payments materially alter the contract
Answers (1)
If you invest $1,500 today in a bank that gives you a 5 percent annual interest rate, which of these items can you buy in two years?
Answers (1)
New Questions in Business
If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75. True/False
Answers (1)
Beasley, Inc., reports the following amounts in its December 31, 2021, income statement. Sales revenue $ 350,000 Income tax expense $ 36,000 Interest expense 13,000 Cost of goods sold 120,000 Salaries expense 35,000 Advertising expense 25,000
Answers (1)
Minimum wage laws have the smallest effect on which segment of the labor force? a. low-skilled labor b. teenagers c. skilled workers d. unemployed workers
Answers (1)
A retailer buys a painting for $200. she sets the selling price at $450. when the painting doesn't sell after two months, she raises the price to $800 to appeal to a different market. the painting sells for $800 the next day.
Answers (1)
Kathy Brooks is a franchisee who wishes to donate her old HRB workstations and server to a local charity for a fundraising auction.
Answers (1)
Home » Business » You are an American real estate mogul. You have just purchased a chain of boutique hotels in the Swiss Alps for CHF 35,000,000. You have financed the purchase with a loan from a Swiss bank in CHF.
Sign Up Forgot Password?