GED Corporation, located in the United States, has an accounts payable obligation of 800 million...
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GED Corporation, located in the United States, has an accounts payable obligation of 800 million payable in one year to a bank in Tokyo. The current spot rate is 115/$1.00 and the one year forward rate is 110/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. GED can also buy a one-year call option on yen at the strike price of $0.0080 per yen for a premium of 0.010 cent per yen.
The maximum future dollar cost of meeting this obligation using the call option hedging is
| $6,484,800. | ||
| $6,545,400. | ||
| $6,400,000. | ||
| $6,880,734 |
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