Gangnam Corporation, a South Korean conglomerate, will pay off a Japanese Yen (denoted JPY) denominated loan with a payment of JPY 120 million eight months from now. The firm's banker, Kimchi Bank has quoted the following interest rates on deposits and loans in various currency denominations. The interest rates are given as continuously compounded (annual) rates valid for all maturities up to and including two years. Currency of Denomination Deposit Rate Borrowing Rate Korean Won (KRW) 5% 6% Japanese Yen (JPY) 2% 3% Costa Rican Colon (CRC) 14% 16% The following exchange rate quotes, in KRW per JPJY, have been provided by the Kimchi Bank. Quotes in KRW/JPY Bid Ask Spot Rate 7.66 7.72 8-Month Forward Rate 7.81 7.89 Kimchi has likewise provided the following option premium quotes in KRW for European options on a notional one JPY with a common exercise price of KRW 7.69 per JPY that expire 8 months from now. Premiums in KRW Bid Ask Call on 1 JPY 0.42 0.69 Put on 1 JPY 0.31 0.49 Kimchi Bank has suggested that Gangnam consider hedging its JPY exposure by employing a range forward on the JPY with an eight-month maturity. Kimchi has set the lower limit of the range to a value of KRW 7.65 per JPY.An economic consulting rm has recently assessed the volatility or sigma of the spot rate on the Japanese Yen in terms of Korean Won at 20%. 2. (15%) Calculate the outright and synthesized forward rates and decide on the best forward hedge for Gangnam's JPY exposure. 3. (15%) Compare the best forward hedge with the option contract, appropriate for hedging the JPY exposure, by calculating the breakeven exchange rate. Interpret the significance of the foregoing number in terms of the decision to hedge via a forward contract versus an option contract