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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 .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. At what one-year forward rate would XYZ be indifferent between money market hedging and forward market hedging? A) 116/$1.00 B)109/$1.00 C) 116.28/$1.00 D)112..72/$1.00
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