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?

Biochemical corp. requires $600,000 in financing over the next three years. the firm can borrow the funds for three years at 10.80 percent interest per year. the ceo decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 7.50 percent interest in the first year, 12.15 percent interest in the second year, and 8.25 percent interest in the third year. assume interest is paid in full at the end of each year. a)determine the total interest cost under each plan. a) long term fixed rate: b) short term fixed rate: b) which plan is less costly? a) long term fixed rate plan b) short term variable rate plan