Question

Case study: Car dealer in VS sells on Dec 10, 2010 10 Mercedes each 100.000 €...

Case study:

Car dealer in VS sells on Dec 10, 2010 10 Mercedes each 100.000 € cogs to a client in Switzerland, payment terms 360 days

He calculates a Margin of 10% over cogs, ie. the sales price is 110.000 € As the client wants to pay the cars in sfr, what is the sfr price that makes

sure we get the 110.000 € ?

Spot rate: 1,25
Sfr interest rate: 1,5% € interest rate: 3%

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Answer #1

Forward rate as per Interest rate parity = Spot rate(1+Interest rate Sfr)/(1+Interest Rate Euro)

= 1.25(1+1.5%)/(1+3%)

= Sfr 1.2318/Euro

Hence, price = 110,000*1.2318

= Sfr 135,498

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