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Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 540 million yen payable in one year. The current spot rate is JPY
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 540 million yen payable in one year. The current spot rate is JPY 126 = USD 1. The annual interest rate is 7% in Japan and 10% in the United States. a. Compute the future US$ cost of meeting this obligation using the money market hedge. b. What would you expect the forward rate to be? c. Explain. d. PCC could also buy a one-year call option on yen at the strike price of $.0079 per yen for a premium of .014 cents per yen. What would be premium be if they fully hedge with options? B
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