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Electricity Company of Ghana has purchased an electric power generator from Mitsui Trading Company of Japan. ECG owes Mitsui 250 million in six months. The
Electricity Company of Ghana has purchased an electric power generator from Mitsui Trading Company of Japan. ECG owes Mitsui 250 million in six months. The present spot rate is 250/$. The six-month forward rate is 248/$. ECG can borrow or invest yen at 8% and U.S. dollars at 10% (annual rates). ECG can also purchase a six-month call option on the Ghana Stock Exchange at a strike price of 250 for a premium of 0.004 cents per yen. Compare the alternative ways ECG can make its payment. Which way do you recommend?
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