Finance 29-33

XYZ Corporation, located in the United States, has an account payable of 750 million yen payable in one year to a bank Tokyo, The current spot rate is 116 per $ and the one year forward rate is yen 109 per $. The annual interest rate is 3 percent in Japan and 6 percent in the one car) dollar cost United States (assume the same lending and borrowing rates). The future(in one year) dollar cost of meeting this obligation using the money market hedge is: a. $6, 450,000 b. $6, 545, 400 c. $6, 653, 833 d. $6, 880, 734 c. none of the above For the above problem of XYZ US Corporation having an accounting payable in yen due in one year, if the firm is considering a forward hedge, what should it do? A. Buy dollar forward now B. B. Buy yen forward now C. Buy dollar forward in one year D. D. Buy yen forward in one year E. None of the above A US industrial firm has exported goods to a German firm, invoked in euro, due in six months (i.e., the US firm has an account receivable in euro). If the firm is considering options for hedge, which of the following is most appropriate? a. Sell euro call b. Sell euro put c. Buy euro call d. Buy euro put e. Buy euro call and put In the above example of a US firm having the euro receivables due in six months, the money market hedge would involve: A. Convert dollar to euro at spot now B. Convert euro to dollar at spot now C. Borrow euro for six months D. Borrow dollar for six months E. B and C only F. A and D only What is CORRECT? a. International diversification induces investors to demand foreign securities. b. Global investment in general provides an inferior risk-return tradeoff than domestic investment. c. International diversification in general increases return and reduces risk. d. Domestic bias refers to a phenomenon that shows less investment in foreign markets than their value weights in the world capital market. e. None of the above