above.

A US$-$based corporation has decided to make an investment in Sweden, for which it will require a sum of $100$ million Swedish kronor $($SEK$)$ in three$-$months' time. The company wishes to hedge changes in the US dollar $($USD$)-$SEK exchange rate using forward contracts on either the euro $($EUR$)$ or the Swiss franc $($CHF$)$ and has made the following estimates:

If EUR forwards are used: The standard deviation of quarterly changes in the USD$/$SEK spot exchange rate is $0\mathrm{.}007,$ the standard deviation of quarterly changes in the USD$/$EUR forward rate is $0\mathrm{.}018,$ and the correlation between the changes is $0\mathrm{.}90.$

If CHF forwards are used: The standard deviation of quarterly changes in the USD$/$SEK spot exchange rate is $0\mathrm{.}007,$ the standard deviation of quarterly changes in the USD$/$CHF forward rate is $0\mathrm{.}023,$ and the correlation between the changes is $0\mathrm{.}85.$