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

Question:

1. 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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