Question
A company based in the US have bought components from Japan for 200 million, payable in four months time. The following data is available: Bid
A company based in the US have bought components from Japan for 200 million, payable in four months time. The following data is available:
Bid Ask
USD/JPY spot rate: 94.0000 94.0040
USD/JPY 4 month forward rate: 86.1000 89.7000
Euroyen borrowing interest rate: 0.4% per annum
Euroyen investment interest rate: 0.1% per annum
Strike price for a USD/JPY call option: 92.0000
Premium for this call option: 2.0%
The companys cost of capital 12% per annum
Required
Evaluate the companys hedging strategies. Please provide at least three of them. What is your recommendation? Give clear explanations for your answer. Your answer needs to include all calculations.
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Financial Accounting The Impact On Decision Makers
Authors: Gary A Porter, Curtis L Norton
7th Edition
1439080526, 9781439080528
