nduna Ltd has just agreed to a long$-$term deal in which it will export products to Japan. It

needs funds to finance the production of the products that it will export. The products will be

denominated in pounds. The prevailing UK long$-$term interest rate is $9$ percent versus $3$

percent in Japan. Assume that interest rate parity exists and that Induna Ltd believes that

the international Fisher effect holds.

i$.$ Should Induna Ltd finance its production with yen and leave itself open to exchange

rate risk? Explain. $(3)$

ii$.$ Should Induna Ltd finance its production with yen and simultaneously engage in

forward contracts to hedge its exposure to exchange rate risk? $(3)$

iii. How could Induna Ltd achieve low$-$cost financing while eliminating its exposure to

exchange rate risk?