Question
Clearview Software, a US exporter, is concerned about the depreciation of JPY against USD due to JPY receivables of JPY800,000,000 in 180 days. To hedge
Clearview Software, a US exporter, is concerned about the depreciation of JPY against USD due to JPY receivables of JPY800,000,000 in 180 days. To hedge (protect himself/herself) the position, exporter decides to use a combination of the forward and options markets. The Clearview receives the following outright 180-day forward quote from its banker: USD/JPY 118.40-118.90 Clearview sells JPY 400,000,000 to deliver in 180 days. To cover JPY 300m portion of the receivable, the company treasurer buys an over the counter put option at a strike price of JPY120, at 2% (2% is the premium) and leaves JPY100m portion of the exposure uncovered. At the time the option was purchased, the spot rate was USD/JPY117. Clearview's cost of capital is 10%. What is the effective amount of dollars Clearview will get in 180 days if the spot rate on that date is USD/JPY122? At the time the option was purchased, the spot rate was USD/JPY117. Clearview's cost of capital is 10%. What is the effective amount of dollars Clearview will get in 180 days if the spot rate on that date is USD/JPY122?
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