13. Micca Metals, Inc. Micca Metals, Inc. is a specialty materials and metals company located in Detroit, Michigan. The company specializes in specific pre- cious metals and materials that are used in a variety of pigment applications in many other industries including cosmetics, appliances, and a variety of high tinsel metal fabricating equipment. Micca just pur- chased a shipment of phosphates from Morocco for 6,000,000 dirhams, payable in six months. Micca's cost of capital is 8.600 %. The following quotes are available in the market.

Six-month call options on 6,000,000 dirhams at an exercise price of 10.00 dirhams per dollar are avail- able from Bank Al-Maghrub at a premium of 2%. Six-month put options on 6,000,000 dirhams at an exercise price of 10.00 dirhams per dollar are avail- able at a premium of 3%. Compare and contrast alternative ways that Micca might hedge its foreign exchange transaction exposure. What is your recom- mendation?

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United States Morocco Six-month interest rate for borrowing 6.00% pa. 8.00% pa Six-month interest rate for investing: 5.00% p.a. 7.00% p.a. Spot exchange rate $1.00 = 10.00 dirhams Six-month forward rate: $1.00 10.40 dirhams