Najafi Company.$$Najafi$$ Company, U$.$S$.-$based manufacturer of industrial$$ equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was $8$ comma $000$ million Korean won$($KRW$).$ KRW$1,000$ million has already been$$ paid, and the remaining KRW$7$ comma $000$ million is due in six months. The current spot rate is KRW$1$ comma $104$equals$$USD$1\mathrm{.}00,$ and the$6-$month forward rate is KRW$1$ comma $171$equalsUSD$1\mathrm{.}00.$ The$6-$month Korean won interest rate is $15\%$ per$$ annum, the$6-$month U$.$S$.$ dollar rate is $4\%$ per annum. Najafi can invest at these interest$$ rates, or borrow at $2\%$ per annum above those rates. A$6-$month call option on won with a KRW$1$ comma $200$equalsUSD$1\mathrm{.}00$ strike rate has a $3\mathrm{.}1\%$premium$,$ while the$6-$month put option at the same strike rate has a $2\mathrm{.}6\%$ premium.$$ Najafi's weighted average cost of capital is $10\%.$ Compare alternate ways below that Najafi might deal with its foreign exchange exposure.$$

a$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months without a hedge if the expected spot rate in $6$ months is assumed to be KRW$1$ comma $104$equals$$USD$1\mathrm{.}00?$ KRW$1$ comma $171$equals$$USD$1\mathrm{.}00?$

b$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months with a forward market$$ hedge?

c$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months with a money market$$ hedge?

d$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months with an option hedge if the expected spot rate in $6$ months is assumed to be less than KRW$1$ comma $200$equals$$USD$1\mathrm{.}00?$ To be KRW$1$ comma $300$equals$$USD$1\mathrm{.}00?$

e$.$ What do you$$ recommend?

Question content area bottom

Part $1$

a$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months without a hedge if the expected spot rate in $6$ months is assumed to be KRW$1$ comma $104$equals$$USD$1\mathrm{.}00?$

USD

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $2$

How much in U$.$S$.$ dollars will Najafi pay in $6$ months without a hedge if the expected spot rate in $6$ months is assumed to be KRW$1$ comma $171$equals$$USD$1\mathrm{.}00?$

USD

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $3$

b$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months with a forward market$$ hedge?

USD

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $4$

c$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months with a money market$$ hedge?

USD

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $5$

d$.$ How much in U$.$S$.$ dollars will Najafi pay in $6$ months with an option hedge if the expected spot rate in $6$ months is assumed to be less than KRW$1$ comma $200$equals$$USD$1\mathrm{.}00?$

$$$

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $6$

How much in U$.$S$.$ dollars will Najafi pay in $6$ months with an option hedge if the expected spot rate in $6$ months is assumed to be KRW$1$ comma $300$equals$$USD$1\mathrm{.}00?$

$$$

$$

enter your response here$($Round to the nearest$$ cent.$)$