An exporter in the US has sold CHF 20 million (in Swiss franc) in goods to one company in Switzerland. Payment is due in 180 days.

Spot rate (USD/CHF): 0.7950 - 60

180-day forward rate (USD/CHF) 0.8090 - 96

180-day U.S. dollar interest rate 5.50 - 5.60% p.a.

180-day Swiss franc interest rate 1.70 - 1.80% p.a.

Required:

a. What is the hedged value of this exporter's receivable using the money market hedge? (4 marks)

b. What is the hedged value using forward contracts?

c. Which of the hedging alternatives analysed in parts (a) and (b) would you recommend to the exporter and explain the reason why this alternative is chosen?