In: Accounting
A U.S. MNC expects to receive ¥750 million from its customer one
year from now. The...
A U.S. MNC expects to receive ¥750 million from its customer one
year from now. The current spot rate is ¥116/$ and the one-year
forward rate is ¥109/$. The annual interest rate is 3% on ¥ and 6%
on USD. The put option on ¥ at the strike price of $0.0086/¥ with
1-year expiration costs 0.012 cent/¥, while the call option on ¥ at
the strike price of $0.0080/¥ with 1-year expiration costs 0.009
cent/¥.
- Construct forward hedging for the MNC. Evaluate the result of
forward hedging.
- Implement money market hedging (MMH) for the MNC. Evaluate the
result of MMH.
- Implement option hedging for the MNC. Conduct cash flow
analysis to show the result of option
- At what future spot rate would the MNC be indifferent between
forward hedging and Money market hedging? Explain
- At what future spot rate would the MNC be indifferent between
option hedging and Money market hedging? At what future spot rate
would the MNC prefer Money market hedging?
- At what forward rate would the MNC be indifferent between
forward hedging and Money market hedging? At what forward rate
would the MNC prefer forward hedging?
- How to hedge the receivable of ¥750 million if it is
conditional on the acceptance of the bid.
Please show all work, thanks