1. To do business in India, with its underdeveloped capital markets, some companies accept payment terms on payables as long as 180 days on a regular basis. Assume that your company wants to hedge an 8.5 million Japanese yen payable and convert it into rupees (Rs). Because the currency is so small in world markets, you will have to calculate your own cross rate. Also, foreign currency options are not available on the Indian rupee. Instead, an Indian currency agent is available who will lock in the current spot exchange rate for a 4.85% fee (payable up front). Given the following exchange rate and interest rate data, recommend a hedging strategy for the 8.5 million payable.

Spot rate, yen/dollar	120.60/$	180-day rupee investment rate	8.00%
Spot rate, rupees/dollar	Rs47.75/$	180-day yen investment rate	1.50%
180-day forward rate, yen/rupee	2.4000/Rs	Cost of capital	12.00%
Expected spot rate in 180 days	2.6000/Rs