Bobcat? Company, U.S.-based manufacturer of industrial? equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was

Won 8 500 million.? Won1,000 million has already been? paid, and the remaining Won7,500 million is due in six months. The current spot rate is Won1,107?/$, and the? 6-month forward rate is Won1,178?/$. The? 6-month Korean won interest rate is 16?% per? annum, the? 6-month U.S. dollar rate is 4.5?% per annum. Bobcat can invest at these interest? rates, or borrow at? 2% per annum above those rates. A? 6-month call option on won with a Won1,200?/$ strike rate has a 3.8?% ?premium, while the? 6-month put option at the same strike rate has a 3.2?% premium.

Bobcat can invest at the rates given? above, or borrow at? 2% per annum above those rates.? Bobcat's weighted average cost of capital is 11.5?%.

Compare alternate ways below that Bobcat might deal with its foreign exchange exposure.??

a. How much in U.S. dollars will Bobcat pay in 6 months without a hedge if the expected spot rate in 6 months is assumed to be Won1,107?/$? Won1,178?/$?

b. How much in U.S. dollars will Bobcat pay in 6 months with a forward market? hedge?

c. How much in U.S. dollars will Bobcat pay in 6 months with a money market? hedge?

d. How much in U.S. dollars will Bobcat pay in 6 months with an option hedge if the expected spot rate in 6 months is assumed to be less than Won1,200?/$ to be Won1,300?/$?

e. What do you? recommend?