Question
XYZ Corporation, located in the United States, has an accounts payable obligation of 750 million payable in one year to a bank in Tokyo. The
XYZ Corporation, located in the United States, has an accounts payable obligation of 750 million payable in one year to a bank in Tokyo. The current spot rate is 116/$1.00 and the one year forward rate is 109/$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 $0.0086 per yen for a premium of 0.012 cent per yen. The future dollar cost of meeting this obligation using the forward hedge is
A) $6,450,000.
B) $6,545,400.
C) $6,653,833.
D) $6,880,734.
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