All Nippon Airway which goes by ANA (9202 on the Tokyo Stock Exchange) has just signed a contract with Boeing to purchase a new 787 for a total of $120,000,000, with payment in three equal tranches. The first tranche of $40,000,000 has just been paid. The next $40,000,000 is due three months from today, and the final payment will be in nine months (270 days). ANA currently has excess cash of 10,500,000,000 (yen) in an Osaka bank, it is from these funds that ANA wishes to make the payments.

The current spot rate is 108.57/$, permission has been obtained for a forward rate (90 days), 107.52/$, and a forward rate of (270 days) 105.78/$. The Eurodollar interest rate for the period is 6.000%, while the yen deposit rate is 3.250%. ANA can borrow in yen at 3.500%, and can borrow in the U.S. dollar market at 8.375%.

A three month call option on dollars in the over-the-counter market, for a strike price of yen 107/$ sells at a premium of 1.18%, payable at the time the option is purchased. A 90 day put option on dollars with the same strike sells at a premium of 1.1%, options for 270 days for a strike of 106/$ can be obtained for a premium of 2.73% and 2.9% respectively. ANA's foreign exchange advisory service forecasts the spot rate in three months to be 107.50/$ and the nine month spot at 105.75 /$.

How should ANA plan to make the payment to Boeing if ANA's goal is to balance the amount paid in Yen against the ending balance of their account? ANA could do nothing and rely upon the spot prices or use hedging (Forward Hedge, Money Market Hedge or Use of Options) to minimize the expenditure. Make a recommendation and defend it.