Q56 - Comparison of Hedging Techniques Use the information below when answering this question: U.S. Euro Deposit rate 2% 8% Borrowing rate 6% 9% . 059 - Estimating the Hedged Cost of Payables 56. Comparison of Hedging Techniques Today the spot rate of the euro is $1.20. The one-year forward rate is $1.16. A one-year call option on euros exists with a premium of $.04 per unit and an exercise price of $1.17. You think the spot rate is the best forecast of future spot rates. You will need to pay 10 million euros in one year. Determine whether a money market hedge or a call option hedge would be more appropriate to hedge your payables. 59. Estimating the Hedged cost of Payables Grady Co. is a manufacturer of hockey equipment in Chicago, and it will need 3 million Swiss francs in one year to pay for imported supplies. The U.S. one- year interest rate is 2 percent. Switzerland's one-year interest rate is 7 percent. The spot rate of the Swiss franc is $.90. The one-year forward rate of the Swiss franc is $.88. A one-year call option on Swiss franc exists with an exercise price of $.90 and a premium of $.03 per unit. As the treasurer of Grady Co., you think the spot rate of the Swiss franc is the best forecast of the future spot rate of the Swiss franc. a. If you use a money market hedge, determine the amount of dollars that you will pay for the payables. b. If you use a call option hedge, determine the expected amount of dollars that you will pay for the payables (account for the option premium within your estimate)