Business, 07.05.2020 02:57 ERIKALYNN092502
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?
Answers: 2
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Dow Chemical has sold SFr 25 million in chemicals to Ciba-Geigy. Payment is due in 180 days.
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