GED Corporation, located in the Uniled States, has an accounts payable obligatio

Question

GED Corporation, located in the Uniled States, has an accounts payable obligation of 800 miltion payable in one year to a bankin Gkyo he a rent spot rate t' ¥11SSIO0 and the one year torward rate is ¥110S100 The annual nterest rate ts 3 cent wi Japan and 6 peon nthe United States. GED can also buy a one-year call option on yen atl the strike price of $0.0080 per yen for a premium of 0.010 cent per yen The luture dolar cost of meeting this obligation using the forward hedge is $6,450,000 $8,800,000 $6,653,833 0 272,727

Explanation / Answer

The forward rate is given is Yen 110 per US $. Therefore future dollar cost using forward hedge will be equal to Yen800M/110= $7,272,727 approximately.

Your answer is correct.

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