Review Problems B Answer - BUS 631 International Finance...

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Review Problems B Answer 1. Remain unhedged Informatics could wait six months, buy JPY80,000,0000 spot at that time, and make the payment. Cost = an uncertain amount (depend on the spot rate in six months) Forward market hedge Buy JPY80,000,000 6-month forward Cost = 80,000,000 x 0.0132 = USD1,056,000 Money market hedge Borrow USD for six months USD1,022,722 Buy JPY spot 125 , 900 , 79 JPY 0128 . 0 722 , 022 , 1 Invest JPY for six months 000 , 000 , 80 JPY ) 2 0025 . 0 1 ( 125 , 900 , 79 176 , 043 , 1 USD ) 2 04 . 0 1 ( 722 , 022 , 1 Cost Options market hedge Options premium USD29,600 (80,000,000 x 0.00037) If the spot rate in six months is less than USD0.0130/JPY, the options would be allowed to expire and the JPY80,000,000 for the payable purchased on the spot market. If the spot rate in six months is greater than USD0.0130JPY, the options would be exercised. The total cost of the options hedge if exercised is as follows: Exercise options (80,000,000 x 0.0130)
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This note was uploaded on 12/02/2011 for the course BUSINESS 0902102028 taught by Professor Issam during the Spring '10 term at Bradford School of Business.

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Review Problems B Answer - BUS 631 International Finance...

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