purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry 500 million yen in one year. The current spot rate is 113.33 yen per dollar and the one-year forward rate is 111.5 yen per dollar. The annual interest rate is 0.9% in Japan and 2.4% in the U.S. PCC can also buy a one-year call option on yen at the strike price of $.008900 per yen for a premium of .017 cents per yen. Compute the future dollar costs of meeting this obligation using the money market hedge. (USD, no cents)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry 500 million yen in one year. The current spot rate is 113.33 yen per dollar and the one-year forward rate is 111.5 yen per dollar. The annual interest rate is 0.9% in Japan and 2.4% in the U.S. PCC can also buy a one-year call option on yen at the strike price of $.008900 per yen for a premium of .017 cents per yen. Compute the future dollar costs of meeting this obligation using the money market hedge. (USD, no cents)

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