P&G India. Procter and Gamble's affiliate in India, P&G India, procures much of its toiletries product line from a Japanese company. Because of the shortage of working capital in India, payment terms by Indian importers are typically 180 days or longer. P&G India wishes to hedge an million Japanese yen payable. Although options are not available on the Indian rupee (Rs), forward rates are available against the yen. Additionally, a common practice in India is for companies like P&G India to work with a currency agent who will, in this case, lock in the current spot exchange rate in exchange for a fee. Using the exchange rate and interest rate data in the popup window, LOADING..., compare alternate ways below that P&G India might deal with its foreign exchange exposure. Assume a 360-day financial year.

a. How much in Indian rupees will P&G India pay in 180 days without a hedge if the expected spot rate in 180 days is assumed to be /Rs? /Rs? /Rs?

b. How much in Indian rupees will P&G India pay in 180 days with a forward market hedge?

c. How much in Indian rupees will P&G India pay in 180 days with a money market hedge?

d. How much in Indian rupees will P&G India pay in 180 days with a currency agent hedge?

e. What do you recommend?

Spot rate 2.48558/Rs 180-day forward rate \2.3601/Rs Expected spot, 180 days 2.6086/Rs 180-day Indian rupee investing rate 7.55% 180-day Japanese yen investing rate 3.14% Currency agent's exchange rate fee 4.72% P&G India's cost of capital 11.73% Click on the icon located on the top-right corner of the Spot rate 2.48558/Rs 180-day forward rate \2.3601/Rs Expected spot, 180 days 2.6086/Rs 180-day Indian rupee investing rate 7.55% 180-day Japanese yen investing rate 3.14% Currency agent's exchange rate fee 4.72% P&G India's cost of capital 11.73% Click on the icon located on the top-right corner of the