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In: Physics

Momomo is a construction company in Japan. Momomo is concerned on the depreciation of Japanese Yen...

Momomo is a construction company in Japan. Momomo is concerned on the depreciation of Japanese Yen in the future. The company expected to pay its supplier EUR 950,000 in Germany in three months. At the same time, Momomo is expected to receive a payment of USD1,500,000 from its customer, three months from now. The cost of capital for Momomo is 7.5%. The current spot rate is at JPY 109/USD and JPY120/EUR

The following information was given by Momomo’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%
  1. How much is the minimum receipt that Momomo able to get if the company decides to perform option market hedge of its account receivable? State your answer in JPY

Answer:

  1. Calculate the maximum cost that Momomo has to bear if the company decides to hedge its account payable using option. State your answer in JPY.

Answer:

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