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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 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?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92414607

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