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3. Cronos is a U.S.-based company. On April 11th the company sold a system to the City of Nagasaki, Japan, for installation in Nagasaki's famous
3. Cronos is a U.S.-based company. On April 11th the company sold a system to the City of Nagasaki, Japan, for installation in Nagasaki's famous Glover Gardens (where Puccini's Madame Butterfly waited for the return of Lt. Pinkerton.) The sale was priced in yen at $18,000,000, with payment due in three months. The current spot rate is 118.255/$, the 1-month forward rate is 117.760/$, and the 3-month forward rate is 116.830/$. The 3-month Japanese interest rate is 9.5% per annum, the 3-month US dollar rate is 4.8% per annum. Cronos can invest at these interest rates, or borrow at 2% per annum above those rates. A 3-month call option on yen with a 120/$ strike rate has a 3.5% premium, while the 3-month put option at the same strike rate has a 2.5% premium. Assume that 3-month later spot exchange rate will be is 122/$. Aquatech's weighted average cost of capital is 10%. Compare alternate ways that Cronos might deal with its foreign exchange exposure. What do you recommend and why
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