(Answered) Dow chemical has sold sfr 25 million in chemicals to

Accounting

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)	5.25%
180-day Swiss franc interest rate (annualized)	1.90%
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? the money market hedge?

b. What alternatives are available to Dow to use currency options to hedge its receivable? Which option hedging strategy would you recommend?

c. Which of the hedging alternatives analyzed in parts (a) and (b) would you recommend to Dow? Why?

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