10 points) KB-Toys sold merchandise to a Japanese customer. The sale was for Yen 200,000,000, with payment due in three months. The following information is available:

Exchange rates:

spot rate: Yen 118/$

3-month forward: Yen 116/$

Money Rates (%per annum):

US investment rate: 19.2%

Japan investment rate: 0.04%

KB toys can borrow in yen at 1% above the Japanese investment rate. KB Toys can borrow in $ at 2% above the US investment rate.

The cost of capital of KB toys is 16%

Do the following:

a) Set up a forward hedge

b) set up a money market hedge

c) what is the break-even reinvestment rate when comparing the forward and money market alternatives?