Question
1. Whohauser is a U.S.-based forest products firm. In June Whohauser delivers a shipment of raw lumber to Japan. The 55,000,000 receivable is due in
1. Whohauser is a U.S.-based forest products firm. In June Whohauser delivers a shipment of raw lumber to Japan. The 55,000,000 receivable is due in 180 days. The firms foreign exchange advisors believe the yen will be at about 115/$ then. The current spot rate is 110/$. Whohauser has received a 180 day forward quote of 108/$. It also collects the following information: Whohausers cost of capital is 7% per annum; the Japanese money market borrowing rate is 2.5% per annum; the Japanese money market lending rate is 2.25% per annum; the U.S. money market borrowing rate is 4% per annum; the U.S. money market lending rate is 3.5% per annum. Please analyze the forward market and money market hedge strategies step by step. Based on your quantitative analysis, which hedge strategy will you recommend? If the company locks in the forward quote and the exchange rate goes to 115 as expected, how much will Whohauser receive in US dollars in 180 days?
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