Question

In: Finance

Dow Chemical has sold SFr 25 million in chemicals to Ciba-Geigy. Payment is due in 180...

Dow Chemical has sold SFr 25 million in chemicals to Ciba-Geigy. Payment is due in 180 days.

            Spot rate:                                                        $0.7957/SFr

            180-day forward rate:                                    $0.8095/SFr

            180-day U.S. dollar interest rate (annualized):    5%

            180-day Swiss franc interest rate (annualized):   2%

            180-day call option at $0.80/SFr:                   2% premium

            180-day put option at $0.80/SFr:                   1% premium

a.         What is the hedged value of Dow’s receivable using the forward market hedge?

b. Explain how Dow can use the money market hedge?

c. Explain the use of currency options to hedge its receivable?

Solutions

Expert Solution

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Question B3: (22 marks) Alcoa Chemical, a US company, has sold £2 million chemicals to CPL...
Question B3: Alcoa Chemical, a US company, has sold £2 million chemicals to CPL Co. Payment is due in 180 days. Spot rate: $1.60/£ 180-day forward rate $1.56/£ 180-day U.S. dollar interest rate (annualized) 3% 180-day Pound interest rate (annualized) 4% 180-day call option on pound at $1.57/£ premium $0.06 per pound 180-day put option on pound at $1.57/£ premium $0.05 per pound (a) What is the hedged value of Alcoa's receivable using the forward market hedge? (b) What is...
4) Assume that revenue is $180 million, cost of goods sold is $50 million, total assets...
4) Assume that revenue is $180 million, cost of goods sold is $50 million, total assets are $800 million and inventories are $80million. On the common size statements, inventories would have an approximate value of ___ and cost of goods sold would have an approximate value of ___
Kansas Corp., an American company, has a payment of €6.1 million due to Tuscany Corp. one...
Kansas Corp., an American company, has a payment of €6.1 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $6,777,778, but Kansas faces the risk that the €/$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €6.1 million forward today at a...
Kansas Corp., an American company, has a payment of €6.2 million due to Tuscany Corp. one...
Kansas Corp., an American company, has a payment of €6.2 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $6,888,889, but Kansas faces the risk that the €/$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €6.2 million forward today at a...
Dow Chemical has been presented with an investment opportunity which will yield end of year cash...
Dow Chemical has been presented with an investment opportunity which will yield end of year cash flows of $3,350 per year in Years 1 through 4, $3,450 per year in Years 5 through 9, and $8,800 in Year 10. This investment will cost the firm $6,850 today, and the firm's required rate of return is 7 percent. What is the NPV for this investment? Group of answer choices $19,762.30 $–1,976.23 $21,738.53 $17,786.07 $23,714.76 Bristol Myers Squibb has been presented with...
Hogwarts Ltd. sold merchandise for $6,000 to H. Potter on July 31, 2019, with payment due...
Hogwarts Ltd. sold merchandise for $6,000 to H. Potter on July 31, 2019, with payment due in 30 days. Because of CoVid-19 pandemic, Potter experienced cash-flow problems and was unable to pay its debt. On December 24, 2019, Hogwarts stopped trying to collect the outstanding receivable from Potter and wrote off the account as uncollectible. On January 15, 2020, Potter sent Hogwarts a check for $1,500 and offered to sign a two-month, 8%, $4,500 promissory note to satisfy the remaining...
A chemical process has produced, on the average, 800 tons of chemicals per day. The daily...
A chemical process has produced, on the average, 800 tons of chemicals per day. The daily yields for the past week are 785, 805, 790, 793, and 802 tons. The sample standard deviation is s = 8.34. (a) Do these data indicate that the average yield is less than 800 tons? Formulate and test an appropriate hypothesis using α=0.05. (b) Find the bounds on the p-value for this test.
Fine Chemicals plc has recently received an invitation to produce a new chemical for supply to...
Fine Chemicals plc has recently received an invitation to produce a new chemical for supply to a textile manufacturer. The invitation is to produce 15,000 kg each year for the next three years at a price of £42 a kg. The following information has been collected which will help the directors to reach a decision on whether to accept the invitation or not: (1)New plant costing £200,000 will need to be bought and paid for at the start of production....
A chemical process has produced, on the average, 800 tons of chemicals per day. The daily...
A chemical process has produced, on the average, 800 tons of chemicals per day. The daily yields for the past week are 785, 805, 790, 793, and 802 tons. The sample standard deviation is s = 8.34. (a) Do these data indicate that the average yield is less than 800 tons? Formulate and test an appropriate hypothesis using α=0.05. (b) Find the bounds on the p-value for this test.
The Alkin Chemical Company manufactures and sells chemicals for agricultural and industrial use. The company has...
The Alkin Chemical Company manufactures and sells chemicals for agricultural and industrial use. The company has grown significantly over the past five years. However, the company’s AIS is the original one developed and installed by the former president’s son while he was in college. Much of the information generated by the system is irrelevant, and more appropriate and timely information is needed. The controller is concerned that actual monthly cost data for most production processes are compared with actual costs...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT