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A Japanese company has a 1,000,000 payable due in one year. Using a money market hedge, detail a strategy that will eliminate exchange rate risk.

A Japanese company has a 1,000,000 payable due in one year. Using a money market hedge, detail a strategy that will eliminate exchange rate risk.

1-year rates on interest

Borrowing Lending

Dollar 4.50% 4.00%

Euro 6.00% 5.25%

Yen 1.00% 0.75%

Spot exchange rates 1-year forward rates

1.25 $/ 1.2262 $/

1.00 $/Yen 1.03 $/Yen

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