GED corporation, located in the United States, has an account payable obligation of ¥800 million payable...

GED corporation, located in the United States, has an account payable obligation of ¥800 million payable in one year to a bank in Tokyo. The current spot rate is ¥115/$1.00 and the one-year forward rate is ¥110/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. GED can also buy a one-year call option on yen at the strike price of $0.0080 per yen for a premium of 0.010 cents per yen. At what one-year forward rate would GED be indifferent between money market hedging and forward market hedging?

a) ¥116/$1.00

b) ¥109/$1.00

c) ¥111.75/$1.00

d) ¥112.72/$1.00

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 5 months ago

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