Question $4$

Bobcat, a U$.$S$.-$based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was Won$7,800$ million. Won$1,500$ million has already been paid, and the remaining Won$6,300$ millioff is due in six months. The current spot rate is Won$1,071\mathrm{.}95/$$$,$ and the $6-$month forward rate is Won$1,103\mathrm{.}28/$$$.$ The $6-$month Korean won interest rate is $12\%$ per annum; the $6-$month U$.$S$.$ dollar rate is $5\%$ per annum. Bobcat can invest at these interest rates or borrow at $1\%$ per annum above those rates. A $6-$month call option on won with a Won$1,100/$$ strike rate has a $2\mathrm{.}83\%$ premium, while the $6-$month put option at the same strike rate has a $2\mathrm{.}48\%$ premium.

Bobcat can invest at the rates given above, or borrow at $1\%$ per annum above those rates. Bobcat's weighted average cost of capital is $9\%.$ Compare alternate ways that Bobcat might deal with its foreign exchange exposure. What do you recommend and why?