A US automotive firm wants to build a new factory in Japan. Information relating to this proposed investment is given below

Construction payment due in six-months (A/P, quetzals) 12,000,000

Present spot rate (Yen/$) 8.0000

Six-month forward rate (Yen/$) 8.2000

Japan six-month interest rate (per annum) 16.000%

U.S. dollar six-month interest rate (per annum) 7.000%

Weighted average cost of capital (WACC) 21.000%

The treasury manager, concerned about the Japanese economy, wonders about the hedging possibilities to minimize its foreign exchange risk. The managers own forecast is as follows:

Expected spot rate in six-months (quetzals/$):

Highest expected rate 9.0000

Expected rate 8.3000

Lowest expected rate 7.5000

1. Show the realistic alternatives are available to this company for making payment? State whether the outcomes are risky or certain. 8 marks
2. Which method would you select and why? 2 marks