IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 223 million...
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IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 223 million payable in three months. Currently, the spot exchange rate is 111/$ and the three-month forward rate is 101/$. The three-month money market interest rate is 10.5 percent per annum in the U.S. and 8.9 percent per annum in Japan. The management of IBM decided to use the money market hedge to deal with this yen account payable.
(a) Compute the dollar cost (today) of meeting the yen obligation (round your answer to zero decimal, e.g., 39,124)
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