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IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 270 million payable in six months. Currently, the spot USD/JPY rate is
IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 270 million payable in six months. Currently, the spot USD/JPY rate is 106 and the six-month forward rate is 101. The six-month money market interest rate is 4.0 percent per annum in the U.S. and 1.4 percent per annum in Japan. The management of IBM decided to use the money market hedge to deal with this yen account payable. Calculate today's dollar cost of meeting this yen obligation. (USD, no cents)
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