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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?

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Expert Solution

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

jeff jeffy answered 1 year ago
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