Momomo is aconstruction company in Japan. Momomo is concerned on thedepreciation of Japanese Yen in the future. The company expected topay its supplier EUR 950,000 in Germany in three months. At thesame time, Momomo is expected to receive a payment of USD1,500,000from its customer, three months from now. The cost of capital forMomomo is 7.5%. The current spot rate is at JPY 109/USD andJPY120/EUR
The following information was given byMomomo’s bank.
| Exercise Price | Premium |
Call option on Yen | JPY 115/USD | 1.25% |
Call option on Yen | JPY 126/EUR | 0.95% |
Put Option on Yen | JPY118/USD | 1.23% |
Put Option on Yen | JPY127/EUR | 1.00% |
- How much is the minimum receipt that Momomo able to get if thecompany decides to perform option market hedge of its accountreceivable? State your answer in JPY
Answer:
- Calculate the maximum cost that Momomo has to bear if thecompany decides to hedge its account payable using option. Stateyour answer in JPY.
Answer:
