(20 points)Plasti-Grip, Inc. of Nebraska just purchased a Korean company that produces plastic nuts and bolts for automobile manufactures. The purchase price was for Won 7,030,000,000. Won 1,000,000,000 has already been paid and the remaining Won 6,030,000,000 is due in six months. The current spot rate is Won 1,200/ $, the six-month forward rate is Won 1,260/ $.

Additional Data:

Korean interest rate: 16% annual

US interest rate: 4% annual

Six-month call option on Korean won @ strike price of won 1,200/$: 3% premium

six month put option on Korean won @ strike price of won 1,200/$: 2.4% premium

Answer the following questions

a. Find the cost of a money market hedge

b. Find the cost of a forward hedge

c. Find the cost of an option hedge. What is the best and worst case?

d. Compare the hedges in terms of costs. Which hedge would you recommend?

e. At what exchange rate is the cost of the option just equal to the cost of the forward market hedge?