ToysRus sold merchandise to a Japanese customer. The sale was for Yen 200,000,000, with payment due in three months. The following information is available: Exchange rates: Spot rate: Yen 118/$ 3-month forward: Yen 116/$ Money rates (% per annum): US investment rate: 4.8% Japan investment rate: 0.4% ToysRus can borrow in Yen at 1% above the Japanese investment rate. KB Toys can borrow in $ at 2% above the US investment rate. The cost of capital of ToysRus is 16%.

2 Do the following: a.) Set up a forward hedge b.) Set up a money market hedge c.) What is the break-even reinvestment rate when comparing the forward and money market alternatives?