1. (20 points) To do business in India, with its underdeveloped capital markets, some companies accept...

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1. (20 points) To do business in India, with its underdeveloped capital markets, some companies accept payment terms on payables as long as 180 days on a regular basis. Assume that your company wants to hedge an 8.5 million Japanese yen payable and convert it into rupees (Rs). Because the currency is relatively small in world markets, you will have to calculate your own cross rate. Also, foreign currency options are not available on the Indian rupee. Instead, an Indian currency agent is available who will lock in the current spot exchange rate for a 4.85% fee (payable up front in rupees). Given the following exchange rate and interest rate data, compute four different available choices and recommend a hedging strategy for the 8.5 million payable. Spot rate, yen/dollar 120.60/$ Spot rate, rupees/dollar Rs47.75/$ 180-day forward rate, yen/rupee Forecast spot rate in 180 days 180-day rupee investment rate 180-day yen investment rate 2.4000/Rs Cost of capital (WACC) 2.6000/Rs 8.00% 1.50% 12.00% 1. (20 points) To do business in India, with its underdeveloped capital markets, some companies accept payment terms on payables as long as 180 days on a regular basis. Assume that your company wants to hedge an 8.5 million Japanese yen payable and convert it into rupees (Rs). Because the currency is relatively small in world markets, you will have to calculate your own cross rate. Also, foreign currency options are not available on the Indian rupee. Instead, an Indian currency agent is available who will lock in the current spot exchange rate for a 4.85% fee (payable up front in rupees). Given the following exchange rate and interest rate data, compute four different available choices and recommend a hedging strategy for the 8.5 million payable. Spot rate, yen/dollar 120.60/$ Spot rate, rupees/dollar Rs47.75/$ 180-day forward rate, yen/rupee Forecast spot rate in 180 days 180-day rupee investment rate 180-day yen investment rate 2.4000/Rs Cost of capital (WACC) 2.6000/Rs 8.00% 1.50% 12.00%