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Question 1 Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million...
Question 1
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million yen payable in one year. The current spot rate is ¥124/$ and the one-year forward rate is 110¥/$. The annual interest rate is in Japan is 5% for lending and 6% for borrowing; and in the United States it is 7% for lending and 8% for borrowing. The WACC is 7%. PCC can also buy a one-year call option on yen at the strike price of $0.0081 per yen for a premium of 0.00014$/¥.
a. Compute the future dollar costs of meeting this obligation using a forward hedge.
b. Compute the future dollar costs of meeting this obligation using a money market hedge. Explain step by step using both numbers and a written explanation the money market strategy.
c. Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used.
d. At what future spot rate do you think PC may be indifferent between the option and the forward hedge?
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jeff jeffy answered 2 years agoRelated Solutions
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry...
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 124 yen per dollar and the one-year forward
rate is 110 yen per dollar. The annual interest rate is 5% in Japan
and 8% in the U.S.
PCC can also buy a one-year call option on yen at the strike
price of $.0081 per yen for a premium of .014 cents per yen....
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry...
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 124 yen per dollar and the one-year forward
rate is 110 yen per dollar. The annual interest rate is 5% in Japan
and 8% in the U.S.
PCC can also buy a one-year call option on yen at the strike
price of $.0081 per yen for a premium of .014 cents per yen....
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry...
Princess Cruise Company (PCC) purchased a ship from Mitsubishi
Heavy Industry. PCC owes Mitsubishi Heavy Industry ¥500 million
payable in one year. The current spot rate is ¥124/$ and the
one-year forward rate is ¥110/$. Interest rate is 5% per annum in
Japan and 8% per annum in the U.S. The 1-year call option on ¥ at
the strike price of $.0081/¥ currently sells for a premium of .014
cents per Yen.
(1) Construct forward hedge for PCC and calculate...
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million yen payable...
Princess Cruise Company (PCC) purchased a ship from Mitsubishi
Heavy Industry for 500 million yen payable in one year. The current
spot rate is ¥124/$ and the one-year forward rate is 110¥/$. The
annual interest rate is in Japan is 5% for lending and 6% for
borrowing; and in the United States it is 7% for lending and 8% for
borrowing. The WACC is 7%. PCC can also buy a one-year call option
on yen at the strike price of...
PLEASE SHOW WORK Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes...
PLEASE SHOW WORK
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 124 yen per dollar and the
one-year forward rate is 110 yen per dollar. The annual interest
rate is 5% in Japan and 8% in the U.S. PCC can also buy a one-year
call option on yen at the strike price of $.0081 per yen for a
premium of .014...
Costa Cruise Lines (CCL) (a U.S. company based in Miami, FL) purchased a ship from Komatsu...
Costa Cruise Lines (CCL) (a U.S. company based in Miami, FL)
purchased a ship from Komatsu Heavy Equipment for ¥700
million – payable in 1 year. The current
spot rate is ¥110/$ and the one-year
forward rate is ¥108/$.
For borrowing (or depositing), the annual interest rate
in Japan is 6%. In the United States,
the rate is 2%.
Yen call and put options, with a 1-year
expiration date and an exercise price of $.009 are available. The
price (premium) of the...
Costa Cruise Lines (CCL) (a U.S. company based in Miami, FL) purchased a ship from Komatsu...
Costa Cruise Lines (CCL) (a U.S. company based in Miami, FL)
purchased a ship from Komatsu Heavy Equipment for ¥700 million –
payable in 1 year. The current spot rate is ¥110/$ and the one-year
forward rate is ¥108/$. For borrowing (or depositing), the annual
interest rate in Japan is 6%. In the United States, the rate is 2%.
Yen call and put options, with a 1-year expiration date and an
exercise price of $.009 are available. The price (premium)...
Travel Inc. sells tickets for a Caribbean cruise to Carmel Company employees. The total cruise package costs Carmel $70,000 from Ship A way Cruise liner.
Travel Inc. sells tickets for a Caribbean cruise to Carmel Company employees. The total cruise package costs Carmel $70,000 from Ship A way Cruise liner. Travel Inc. receives a commission of 6% of the total price. Travel Inc., therefore, remits $65,800 to Ship A way. Prepare the entry to record the revenue recognized by Travel Inc. on this transaction.
You have a purchase order to acquire €1 million of heavy equipment from a French company...
You have a purchase order to acquire €1 million of heavy
equipment from a French company to be paid in full at time of
delivery in March 2021. Describe in detail how you would hedge this
transaction. Quantify the number of contracts.
If a returns-to-scale industry has a minimum point at 1 million and the market is 500...
If a returns-to-scale industry has a minimum point at 1 million
and the market is 500 thousand, how many firms are likely to be in
the market? (2)
If a returns-to-scale industry has a minimum point at 1
million, and the market is 3 million, how many firms are likely to
be in the market? (2)
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