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Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for 1 million francs at today's spot rate. The firm's financial manager, James Desreumaux, has noted the following current spot and forward rates: <image 1> On the same day, Desreumaux agrees to purchase 15,000 more watches in 3 months at the same price of 1 million francs. If the exchange rate for the Swiss franc is 0.50 to $1 in 90 days, how much will Desreumaux have to pay (in dollars) for the watches?


Google: Gemini Pro Vision 1.0
mmmu / FinancePublic

Answer: $1,515,000

Explanation: The forward rate for 90 days is 0.6075 franc per dollar. This means that Desreumaux will have to pay 1,000,000 francs * 0.6075 francs per dollar = 607,500forthewatchesin90days.However,theexchangeratein90daysis0.50francperdollar.ThismeansthatDesreumauxwillactuallyhavetopay607,500 for the watches in 90 days. However, the exchange rate in 90 days is 0.50 franc per dollar. This means that Desreumaux will actually have to pay 607,500 / 0.50 franc per dollar = $1,215,000 for the watches.

In addition, Desreumaux has already agreed to purchase 15,000 watches for 1 million francs at today's spot rate of 0.6028 franc per dollar. This means that he will have to pay 1,000,000βˆ—0.6028francperdollar=1,000,000 * 0.6028 franc per dollar = 602,800 for these watches.

Therefore, the total amount that Desreumaux will have to pay for the 30,000 watches is 1,215,000+1,215,000 + 602,800 = $1,817,800.


Difficulty: Medium

Subfield: Financial Management

Evaluation

Evaluation ID
a5ac730e-0113-459f-a43f-4405bfb3443e
Created
February 21, 2024
Raw Output
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        "content": " **Answer:** $1,515,000\n\n**Explanation:** The forward rate for 90 days is 0.6075 franc per dollar. This means that Desreumaux will have to pay 1,000,000 francs * 0.6075 francs per dollar = $607,500 for the watches in 90 days. However, the exchange rate in 90 days is 0.50 franc per dollar. This means that Desreumaux will actually have to pay $607,500 / 0.50 franc per dollar = $1,215,000 for the watches.\n\nIn addition, Desreumaux has already agreed to purchase 15,000 watches for 1 million francs at today's spot rate of 0.6028 franc per dollar. This means that he will have to pay $1,000,000 * 0.6028 franc per dollar = $602,800 for these watches.\n\nTherefore, the total amount that Desreumaux will have to pay for the 30,000 watches is $1,215,000 + $602,800 = $1,817,800."
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