Hawaii Co. just agreed to a long-term deal in which it will export products to Japan. It

Question:

Hawaii Co. just agreed to a long-term deal in which it will export products to Japan. It needs funds to finance the production of the products that it will export. The products will be denominated in dollars. The prevailing U.S. long-term interest rate is 9 percent versus 3 percent in Japan. Assume that interest rate parity exists and that Hawaii Co. believes that the international holds.
a. Should Hawaii Co. finance its production with yen and leave itself open to risk? Explain.
b. Should Hawaii Co. finance its production with yen and simultaneously engage in forward contracts to hedge its exposure to risk?
c. How could Hawaii Co. achieve low-cost financing while eliminating its exposure to risk?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Fisher Effect
The Fisher Effect is an economic theory created by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher Effect states that the real interest rate equals the nominal interest...