a) A US technology firm, Access Ltd, sells a data processing system to Banks Ltd a Swiss firm in March for SF1,000,000 for which payment is due three months later in June. Access Ltd's cost of capital is 12% and the following quotes are available Spot exchange rate: $0.5210/SF Three month forward rate: $0.5170/SF . Swiss three month borrowing interest rate 10%: p.a. Swiss three month investment interest rate 8%: p.a. US three month borrowing interest rate: 8% p.a. US three month investment interest rate: 6% p.a. June put option in the market for SF1,000,000; strike price $0.5230, 1.5% premium June put option in the market for SF1,000,000; strike price $0.4800, 1.0% premium Access Ltd's foreign exchange advisory service forecasts that the spot rate in three months will be $0.5200/SF. 1 Access Ltd is concerned about the possibility that the Swiss Franc will fall since it operates on relatively low margins. When Access Ltd budgeted this contract it determined that the minimum acceptable margin was at a sales price of $490,000 and therefore the lowest acceptable $/SF exchange rate was established at $0.4900/SF. Any exchange rate below this budget would result in a loss on the transaction for Access Ltd. Required: Four alternatives are available for Access Ltd; remain un-hedged, hedge in the forward market, hedge in the money market and hedge in the options market. Recommend the best alternative to manage its forex exposure. (9 marks)