A U.S. company has an accounts payable obligation of 750 million payable in six months to a Japanese company. The current spot rate is 116.00/$. The six-month interest rate is 1 percent per annum in Japan and 2 percent per annum in the United States. The company can buy a six-month call option on yen at the exercise price of $0.00909/ for $0.00012/.

1. Calculate the future dollar cost of meeting this obligation using the option hedge if the spot exchange rate turns out to be 120.00/$ six months from now.

2. Calculate the future dollar cost of meeting this obligation using the money market hedge.