Electricity Company of Ghana has purchased an electric power generator from Mitsui Trading Company of Japan. ECG owes Mitsui ¥250 million in six months. The present spot rate is ¥250/$. The six-month forward rate is ¥248/$. ECG can borrow or invest yen at 8% and U.S. dollars at 10% (annual rates). ECG can also purchase a six-month call option on the Ghana Stock Exchange at a strike price of ¥250 for a premium of 0.004 cents per yen. Compare the alternative ways ECG can make its payment.

 Which way do you recommend?

Answer rating: 100% (QA)

To determine the most favorable way for ECG to make its payment we need to compare the different alternatives and consider their costs and potential b... View the full answer