U.S. Euro Deposit rate 2% 8% Borrowing rate 6% 9% Estimating the Hedged Cost of Payables

from this information. You plan to visit Auckland, New Zealand in 90-days to attend an international business conference. You expect to incur a total cost of NZ$ 25,000 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is $0.60/NZ$ and the 90-day forward rate is $0.63/NZ$. You can buy the 90-day call option on NZ$ with the exercise rate of $0.64/NZ$ for the premium of $0.03 per NZ$. Assume that your expected future spot exchange rate is the same as the forward rate. The 90-day interest rate is 4% annually in the United States and 6% annually in New Zealand.