Bobcat? Company, U.S.-based manufacturer of industrial? equipment, just purchased a Korean company that produces plastic nuts and...

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Bobcat? Company, U.S.-based manufacturer of industrial?equipment, just purchased a Korean company that produces plasticnuts and bolts for heavy equipment. The purchase price was Won8,000million. Won1,000 million has already been? paid, and the remainingWon7,000 million is due in six months. The current spot rate isWon1,104/$ and the? 6-month forward rate is Won1,162/$. The?6-month Korean won interest rate is 15% per annum, the 6-month U.S.dollar rate is 3.5% per annum. Bobcat can invest at these interestrate, or borrow ar 2% per annum above those rates. A 6-month calloption on won with a Won 1,200/$ strike rate has a 3.2% premium,while the 6-month put option at the same strike rate has a 2.5%premium.
Bobcat can invest at the rates given above, or borrow at 2% perannum above those rates. Bobcat's weighted average cost of capitalis 11%. Compare alternate ways below that Bobcat might deal withits foreign exchange exposure.??
a.) How much in U.D Dollars will Bobcat pay in 6 months withouta hedge if the expected spot rate in 6 months is assumed to be (1)Won1,104/$? (2) Won 1,162/$?
b) How much in U.S. dollars will Bobcat pay in 6 months with aforward market? hedge?
c) How much in U.S. dollars will Bobcat pay in 6 months with amoney market? hedge?
d) How much in U.S. dollars will Bobcat pay in 6 months with anoption hedge if the expected spot rate in 6 months is assumed to beless than (1) Won1,200/$ (2) To be 1,300/$
e) What do you? recommend?

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4.2 Ratings (708 Votes)

a Payment in USD without hedge Won 7000 million expected spot rate in 6 months 1 Won 7000 million Won 1104 6340580 2 Won 7000 million Won 1162 6024096 b Payment in USD with forward hedge Won 7000 million 6month forward rate Payment in USD with forward hedge Won 7000 million Won 1162 6024096 c To pay Won 7000 million in 6 months the amount of See Answer

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Bobcat? Company, U.S.-based manufacturer of industrial?equipment, just purchased a Korean company that produces plasticnuts and bolts for heavy equipment. The purchase price was Won8,000million. Won1,000 million has already been? paid, and the remainingWon7,000 million is due in six months. The current spot rate isWon1,104/$ and the? 6-month forward rate is Won1,162/$. The?6-month Korean won interest rate is 15% per annum, the 6-month U.S.dollar rate is 3.5% per annum. Bobcat can invest at these interestrate, or borrow ar 2% per annum above those rates. A 6-month calloption on won with a Won 1,200/$ strike rate has a 3.2% premium,while the 6-month put option at the same strike rate has a 2.5%premium.Bobcat can invest at the rates given above, or borrow at 2% perannum above those rates. Bobcat's weighted average cost of capitalis 11%. Compare alternate ways below that Bobcat might deal withits foreign exchange exposure.??a.) How much in U.D Dollars will Bobcat pay in 6 months withouta hedge if the expected spot rate in 6 months is assumed to be (1)Won1,104/$? (2) Won 1,162/$?b) How much in U.S. dollars will Bobcat pay in 6 months with aforward market? hedge?c) How much in U.S. dollars will Bobcat pay in 6 months with amoney market? hedge?d) How much in U.S. dollars will Bobcat pay in 6 months with anoption hedge if the expected spot rate in 6 months is assumed to beless than (1) Won1,200/$ (2) To be 1,300/$e) What do you? recommend?