Value of Teks payables = 8,000,000

Payable due in = 180 days

Given:

• Spot rate is 108.20/$
• 6-month forward rate is 106.20/$
• Teks cost of capital is 9.8%
• Japans 6-month deposit rate is 1.250% p.a.
• U. S. 6 month borrowing rate is 4.0% p.a.
• 6-month yen call option strike price = 108/$
• Option premium = 2.5%
• The expected spot rate can be estimated from the following information:

Possible Spot Rate in 180 days	Probability
101.35/$	35%
105.44/$	50%
110.21/$	15%

Remain Unhedged Convert $ to yen in 6 months.

Amount of yen payable = 8,000,000.00

Possible Spot Rate in 180 days	Total cost of buying	Probability
101.35/$		35%
105.44/$		50%
110.21/$		15%