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Notes: 4. Assume 117 days between the date of February 14th, 2012, and June 10th, 2012 when the Yen exposure of ¥2,400,000,000 payable occurs. 5. To assess alternative ways of hedging, I have made it easy for you by pulling out the more important and relevant data from the Tables given in the case at the end of chapter 8 so you can use them in answering the questions of this case: ADG has a Y2,400 million payable in 4 months based on an agreement to buy 300,000 RAM chips at Y8000 each by June 10th (4 months out, payable in Yen). The relevant market data include: The current spot exchange rate of $0.01274/Y, four-month forward exchange rate of $0.01274/Y, four- month call option on yen with the strike price set at 127 cents for 100 yen that is selling for 3.11 (Ask) cents per 100 yen. ADG's borrowing interest rate in dollars is 0.62%, while lending interest rate in yen is 0.18%. 6. Question: Compare three alternative hedging methods for this: Forward, money market, and option hedges. Hedging with futures is often inconvenient due to the standardized maturities and contract size and also possibly thin trading.

Notes: 4. Assume 117 days between the date of February 14th, 2012, and June 10th, 2012 when the Yen exposure of ¥2,400,000,000 payable occurs. 5. To assess alternative ways of hedging, I have made it easy for you by pulling out the more important and relevant data from the Tables given in the case at the end of chapter 8 so you can use them in answering the questions of this case: ADG has a Y2,400 million payable in 4 months based on an agreement to buy 300,000 RAM chips at Y8000 each by June 10th (4 months out, payable in Yen). The relevant market data include: The current spot exchange rate of $0.01274/Y, four-month forward exchange rate of $0.01274/Y, four- month call option on yen with the strike price set at 127 cents for 100 yen that is selling for 3.11 (Ask) cents per 100 yen. ADG's borrowing interest rate in dollars is 0.62%, while lending interest rate in yen is 0.18%. 6. Question: Compare three alternative hedging methods for this: Forward, money market, and option hedges. Hedging with futures is often inconvenient due to the standardized maturities and contract size and also possibly thin trading.

Excel Applications for Accounting Principles
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter22: Master Budget (master)
Section: Chapter Questions
Problem 2R: Open the file MASTER from the website for this book at cengagebrain.com. Enter all the formulas...
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Notes: 4. Assume 117 days between the date of February 14th, 2012, and June 10th, 2012 when the Yen exposure of ¥2,400,000,000 payable occurs. 5. To assess alternative ways of hedging, I have made it easy for you by pulling out the more important and relevant data from the Tables given in the case at the end of chapter 8 so you can use them in answering the questions of this case: ADG has a Y2,400 million payable in 4 months based on an agreement to buy 300,000 RAM chips at Y8000 each by June 10th (4 months out, payable in Yen). The relevant market data include: The current spot exchange rate of $0.01274/Y, four-month forward exchange rate of $0.01274/Y, four- month call option on yen with the strike price set at 127 cents for 100 yen that is selling for 3.11 (Ask) cents per 100 yen. ADG's borrowing interest rate in dollars is 0.62%, while lending interest rate in yen is 0.18%. 6. Question: Compare three alternative hedging methods for this: Forward, money market, and option hedges. Hedging with futures is often inconvenient due to the standardized maturities and contract size and also possibly thin trading.
Transcribed Image Text:Notes: 4. Assume 117 days between the date of February 14th, 2012, and June 10th, 2012 when the Yen exposure of ¥2,400,000,000 payable occurs. 5. To assess alternative ways of hedging, I have made it easy for you by pulling out the more important and relevant data from the Tables given in the case at the end of chapter 8 so you can use them in answering the questions of this case: ADG has a Y2,400 million payable in 4 months based on an agreement to buy 300,000 RAM chips at Y8000 each by June 10th (4 months out, payable in Yen). The relevant market data include: The current spot exchange rate of $0.01274/Y, four-month forward exchange rate of $0.01274/Y, four- month call option on yen with the strike price set at 127 cents for 100 yen that is selling for 3.11 (Ask) cents per 100 yen. ADG's borrowing interest rate in dollars is 0.62%, while lending interest rate in yen is 0.18%. 6. Question: Compare three alternative hedging methods for this: Forward, money market, and option hedges. Hedging with futures is often inconvenient due to the standardized maturities and contract size and also possibly thin trading.
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