Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 300 million Japanese yen payable in one year. The current spot rate is 125/$ and the one-year forward rate is 113/$. The annual interest rate is 4% in Japan and 7% in the United States. PCC can also buy a one-year call option on Japanese yen at the exercise price of $0.0078 per yen for a premium of 0.016 cents per yen.

A. Compute the future dollar costs of meeting this obligation using the forward market and money market hedges

B. Assume that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the options market hedge is used.

C. Compared the forward, money, and options market hedges, which way of hedge has the lowest future dollar cost?