IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed $250$ million payable in three months. Currently, the spot exchange rate is $\frac{105}{\text{\$}}$ and the three$-$month forward rate is $\frac{100}{\text{\$}}.$ The three$-$month money market interest rate is $8$ percent per annum in the U$.$S$.$ and $7$ percent per annum in Japan. The management of IBM decided to use the money market hedge to deal with this yen account payable.

Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation. Show the steps associated with the strategy.

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