Lindt, a Swiss chocolate producer, has sold fine chocolates in the United States. To win sales...

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Lindt, a Swiss chocolate producer, has sold fine chocolates in the United States. To win sales against other competitors, Lindt offers its overseas buyers attractive payment terms and allows them to settle in 90 days. Lindt's U.S. buyers will pay its receivables in USD. (a) Lindt worries about the USD will weaken against the CHF. The CFO wants to use an option to hedge against the exchange rate exposure. What currency option should Lindt use? (2 marks) The Bloomberg terminal shows the following information: Spot CHF/USD 1.2500 90-day USD effective interest = 5.00% 90-day CHF effective interest = 3.00% (b) The 90-day European USD call with an exercise price of 1.3000 is trading at CHF 0.0219. What is the price of a 90-day European USD put at the same exercise price? (4 marks) (c) The CFO believes that a USD put is equivalent to a CHF call. Do you think his thought is correct or not? (1 mark) Briefly comment on it. (2 marks) Lindt, a Swiss chocolate producer, has sold fine chocolates in the United States. To win sales against other competitors, Lindt offers its overseas buyers attractive payment terms and allows them to settle in 90 days. Lindt's U.S. buyers will pay its receivables in USD. (a) Lindt worries about the USD will weaken against the CHF. The CFO wants to use an option to hedge against the exchange rate exposure. What currency option should Lindt use? (2 marks) The Bloomberg terminal shows the following information: Spot CHF/USD 1.2500 90-day USD effective interest = 5.00% 90-day CHF effective interest = 3.00% (b) The 90-day European USD call with an exercise price of 1.3000 is trading at CHF 0.0219. What is the price of a 90-day European USD put at the same exercise price? (4 marks) (c) The CFO believes that a USD put is equivalent to a CHF call. Do you think his thought is correct or not? (1 mark) Briefly comment on it. (2 marks)

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a Lindt should use a USD put option to hedge against the exchange rate exposure as it receives USD f... View the full answer