#8

8 Kansas Corp., an American company, has a payment of 6.3 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 /$, this would cost Kansas $7,000,000, but Kansas faces the risk that the /$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy 6.3 million forward today at a one-year forward rate of 0.89 /$. Strategy 2 is to pay a premium of $113,000 for a one-year call option on 6.3 million at an exchange rate of 0.88 /$. 50 points eBook a. Suppose that in one year the spot exchange rate is 0.85 /$. What would be Kansas's net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.) References Net Dollar Cost Strategy 1 Strategy 2 b. Suppose that in one year the spot exchange rate is 0.95 /$. What would be Kansas's net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.) Net Dollar Cost Strategy 1 Strategy 2