International Worldwide would like to execute a money market hedge to cover a U250,000,000 shipment from Japan
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Question:
International Worldwide would like to execute a money market hedge to cover a U250,000,000 shipment from Japan of sound systems it will receive in six months. The current exchange rate is U124 = $1.(a) How would International Worldwide structure the hedge? What wouldit do to hedge the Japanese yen it must pay in six months? The annual yen interest rate is 4.5%.(b) The yen may rise to as much as U138 = $1 or fall to U110 = $1. What will the total dollar cash flow be in six months in either case?
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