GED Caporation located in the Uiled States, has an accounts payable obligalion o

Question

GED Caporation located in the Uiled States, has an accounts payable obligalion of 800 mion payale in one year to a bnk n ayo The currentspot rates v11ss1 00 and the one year knard rate is V1105100 The muitorest rate is 3 percent Japan and 6 percent in the United States OED can aso buy a one year call option on yen at the strike price of $0.0080 per yen for a premum of 0010 cent per yen At whatl one year spot rate would OED be indifferent botween money market hedging and option market hedging? ¥11651 00 ¥116 1951 00 This rate does not exst

Explanation / Answer

Answer :Expected future spot rate is $ (=1/110 ) = 0.0091 which is higher than excercise price 0.0080 .

Answer a

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