Question: Note that the interest rate differentials vary slightly from the forward discounts on the yen because of time differences for the quotes. The spot 117.709/5,

 Note that the interest rate differentials vary slightly from the forward

Note that the interest rate differentials vary slightly from the forward discounts on the yen because of time differences for the quotes. The spot 117.709/5, for example, is a midpoint range. On April 11, the spot yen traded in London from V118.516/5 to 116.902/5. Krystal's Japanese competitors are currently borrowing yon from Japanese banks of a spread of two percentage points above the Japanese money rate. Krystal's weighted average cost of capital is 16.5%, and the company wishes to protect the dollar value of this receivable 3-month options are available from Kyushu Bank call option on V24,000,000 at exercise price of $117.000/8 a 1.6% premium or a put option on 124,000,000, at exercise price of 117.0005 3.4% premium a. What are the costs and benefits of alternative hedges? Which would you recommend, and why? b. What is the break-even reinvestment rate when comparing forward and money market alternatives? a. How much in US dollars wil Krystal receive in 3 months without a hedge of the expected spot rate in 3 months is assumed to be 117.70937 $ (Round to the nearest cont.) Note that the interest rate differentials vary slightly from the forward discounts on the yen because of time differences for the quotes. The spot 117.709/5, for example, is a midpoint range. On April 11, the spot yen traded in London from V118.516/5 to 116.902/5. Krystal's Japanese competitors are currently borrowing yon from Japanese banks of a spread of two percentage points above the Japanese money rate. Krystal's weighted average cost of capital is 16.5%, and the company wishes to protect the dollar value of this receivable 3-month options are available from Kyushu Bank call option on V24,000,000 at exercise price of $117.000/8 a 1.6% premium or a put option on 124,000,000, at exercise price of 117.0005 3.4% premium a. What are the costs and benefits of alternative hedges? Which would you recommend, and why? b. What is the break-even reinvestment rate when comparing forward and money market alternatives? a. How much in US dollars wil Krystal receive in 3 months without a hedge of the expected spot rate in 3 months is assumed to be 117.70937 $ (Round to the nearest cont.)

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