Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. 12. xyz corporation, located in the united states,

12. XYZ Corporation, located in the United States, has an accounts payable obligation of Y750...

80.2K

Verified Solution

Question

Accounting

image

12. XYZ Corporation, located in the United States, has an accounts payable obligation of Y750 million payable in one year to a bank in Tokyo. The current spot rate is 116 yen per dollar and the one year forward rate is 109 yen per dollar. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can buy a one-year put option on yen at the strike price of $0.0086 per yen for a premium of 0.008 cents per yen. 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 cents per yen. (a) (2 points) Do forward market hedge. Indicate whether to buy or sell forward. Solution: (b-1) (1 points) Now assume that the corporation would use regular' option market hedge. First, indicate whether XYZ corporations should use a put option or a call option to hedge the currency risk. Solution: (5-2) (3 points) What is the maximum total cost (in $) that the firm would end up paying by using the option market hedge? Solution

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students