2. Using the following information, how would you show the board of direc- tors the advantages and disadvantages of each hedging tool?

You have just been hired by Chockletto International as a risk manager. Chock- letto International is a Swiss manufacturer of fine perfume. It imports some of its raw material from the Hawaiian Island Flower Co. of the United States of America. On May 1, 2003, Chockletto International purchased from Hawai- ian Island Flower Co. 200 pounds of a specific Hawaiian rose oil to be delivered on November 1, 2003, at total cost of $2,000,000. The USD/CHF exchange rate on May 1 is 0.7233. Current economic forecasts indicate the dollar is expected to continue to strengthen against all major currencies. Chockletto International must maintain its market share of the perfume market and must fulfill its contractual agreement with Hawaiian Island Flower Co.

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Foreign Exchange Rates: Spot USD/CHF 0.7233-236 Forward USD/CHF 1m 40-245 3m 50-258 6m 65-275 12m 80-285 Interest Rates 6 Mos US$ CHF Option Prices Put option CHF 6 month Exercise price (strike price) Option price 1.15%-1.16% 0.90%-0.92% $0.720 $0.0293