Question: PLEASE BE READY TO ANSWER QUESTIONS AFTER YOU POST THE ANSWER. I NEED TO ASK QUESTIONS. THANK YOU. IBM purchased computer chips from NEC, a

PLEASE BE READY TO ANSWER QUESTIONS AFTER YOU POST THE ANSWER. I NEED TO ASK QUESTIONS. THANK YOU.

IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 250 million payable in three months. Currently, the spot exchange rate is 105/$ and the three-month forward rate is 100/$. The three-month money market interest rate is 8 percent per annum (2% for three-months) in the U.S. and 7 percent per annum (7%/4 for three months) in Japan. The management of IBM decided to use the money market hedge to deal with this yen account payable.

Explain the process of a money market hedge and compute the future dollar cost of meeting the yen obligation.

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