XYZ Corporation, located in the United States, has an accounts payable obligation of 800 million payable in one year to a bank in Tokyo. The current spot rate is 115/$1.00 and the one year forward rate is 110/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of $0.0080 per yen for a premium of 0.010 cent per yen.

• The maximum future dollar cost of meeting this obligation USING THE CALL OPTION HEDGING is:

$6,400,000

$6,545,400

$6,484,800

$6,880,734

• The future dollar cost of meeting this obligation USING THE FORWARD HEDGE is:

$6,450,000

$8,800,000

$6,653,833

$7,272,727

• The future dollar cost of meeting this obligation USING THE MONEY MARKET HEDGE is:

$7,240,000

$6,545,400

$7,133,833

$7,159,139

• At what one-year spot rate would GED be indifferent between money market hedging and OPTION market hedging?

116/$1.00

109/$1.00

116.28/$1.00

This rate does not exist

• At what one-year spot rate would GED be indifferent between money market hedging and FORWARD market hedging?

116/$1.00

109/$1.00

111.75/$1.00

112.72/$1.00