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 of Won6,500 million is due in six months. The current spot rate is Won1,110/$, and the 6-month forward rate is Won1,175/$. For investment, the six-month Korean won interest rate is 16% pe annum, the six-month US dollar rate is 4% per annum. For borrowing, the six-month Korean won interest rate is 18% pe annum, the six-month US dollar rate is 6% per annum. A six-month call option on won with a 1200/$ strike rate has a 3.0% premium, while the six-month put option at the same strike rate has a 2.4% premium. Bobcat's weighted average cost of capital is 10% per annum. Use the cost of capital for Future value calculation. Compare alternate ways that Bobcat might deal with its foreign exchange exposure. What do you recommend and why? The following table shows possible $ amount Bobcat pays when the actual ending spot rate (first row) is realized depending on different alternative decisions. All the values are $ amount at the time when payment is due. [a] Fill in the table with supporting works. [b] show in a diagram of alternative strategies. A student can show rough diagram manually. [c] What do you recommend and why? [c] What do you recommend and why?

unhedged MM hedge Exchange rate at thetime of payment, Won/$ Forward hedge option - net cash flow including premium 1,180 1,190 1,200 1,210 1,220 1,230