1. Based on the given information, P& G india should

a. buy a yen forward

b. sell a yen forward or

c borrow 8.5 million yens now

2. If there exists a market of currency of yen denominated in rupees, P & G india should hedge the yen risk bya

a. Buy a yen cal and buy a yen put

b. buy a yen call and sell a yen put

c. sell a yen call and buy a yen put

d. sell a yen call and sell a yen put

Problem 9.2 Siam Cement Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the mid-1990s, taking on massive quantities of foreign currency denominated debt (primarily U.S. dollars). When the Thai baht (B)was devalued from its pegged rate of B25.0/S in July 1997, Siam's interest payments alone were over S900 millon on its outstanding dollar debt (with an average interest rate of 8.40% on its US. dollar debt at that time. Assuming Siam Cement took out S50 million in debt in June 1997 at 8.40% interest, and had to repay it in one year when the spot exchange rate had stabilized at B42.0/S, what was the foreign exchange loss incurred on the transaction? Assumptions US dollar debt taken out in June 1997 US dollar borrowing rate on debt Initial spot exchange rate, baht/dollar, June 1997 Average spot exchange rate, baht/dollar, June 1998 Value S 100,000,000 8.400% 25.00 42.00 Calculation of Foreign Exhange Loss on Repayment of Loan At the time the loan was acquired, the scheduled repayment of dollar and baht amounts would have been as follows: Scheduled Repayment: Repayment of US dollar debt: Principal Repayment of US dollar debt: Interest S 100,000,000 Total repayment S 108,400,000 Exchange rate at time of repayment, baht/dollar Total repayment in Thai baht Total proceeds from loan, up-front, in Thai baht 25.00 2,710,000,000 500,000.000 Net interest to be paid, in Thai baht L-210.000,000 Actual Repayment: Repayment of US dollar debt: Principal Repayment of US dollar debt: Interest S 100,000,000 Total repayment s 108,400,000 42.00 4,552,800,000 2.710,000,000) Exchange rate at time of repayment, baht dollar Total repayment in Thai baht Less what Siam had EXPECTED or SCHEDULED to be repaid Amount of foreign exchange 1oss on debt Problem 9.2 Siam Cement Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the mid-1990s, taking on massive quantities of foreign currency denominated debt (primarily U.S. dollars). When the Thai baht (B)was devalued from its pegged rate of B25.0/S in July 1997, Siam's interest payments alone were over S900 millon on its outstanding dollar debt (with an average interest rate of 8.40% on its US. dollar debt at that time. Assuming Siam Cement took out S50 million in debt in June 1997 at 8.40% interest, and had to repay it in one year when the spot exchange rate had stabilized at B42.0/S, what was the foreign exchange loss incurred on the transaction? Assumptions US dollar debt taken out in June 1997 US dollar borrowing rate on debt Initial spot exchange rate, baht/dollar, June 1997 Average spot exchange rate, baht/dollar, June 1998 Value S 100,000,000 8.400% 25.00 42.00 Calculation of Foreign Exhange Loss on Repayment of Loan At the time the loan was acquired, the scheduled repayment of dollar and baht amounts would have been as follows: Scheduled Repayment: Repayment of US dollar debt: Principal Repayment of US dollar debt: Interest S 100,000,000 Total repayment S 108,400,000 Exchange rate at time of repayment, baht/dollar Total repayment in Thai baht Total proceeds from loan, up-front, in Thai baht 25.00 2,710,000,000 500,000.000 Net interest to be paid, in Thai baht L-210.000,000 Actual Repayment: Repayment of US dollar debt: Principal Repayment of US dollar debt: Interest S 100,000,000 Total repayment s 108,400,000 42.00 4,552,800,000 2.710,000,000) Exchange rate at time of repayment, baht dollar Total repayment in Thai baht Less what Siam had EXPECTED or SCHEDULED to be repaid Amount of foreign exchange 1oss on debt