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.2 Bobcat Company. Bobcat Company, a U.S.-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment.
.2 Bobcat Company. Bobcat Company, a U.S.-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was 7,500 million. $1,000 million has already been paid, and the remaining months. The current spot rate is 1,110/$, and the 6 -month forward rate is 1,175/$. The 6 -month Korean won interest rate is 16% per annum, the 6 month U.S. dollar rate is 4% per annum. Bobcat can invest at these interest rates, or borrow at 2% per annum above those rates. A 6 -month call option on won with a 1,200/$ strike rate has a 3.0% premium, while the 6 -month put option at the same strike rate has a 2.4% premium. Bobcat can invest at the rates given previously, or borrow at 2% per annum above those rates. Bobcat's weighted average cost of capital is 10%. Compare alternate ways that Bobcat might deal with its foreign exchange exposure. What do you recommend and why
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