Ask Question
6 July, 16:52

XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the one year forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of $0.0086 per yen for a premium of 0.012 cent per yen. The maximum future dollar cost of meeting this obligation using the call option is

+3
Answers (1)
  1. 6 July, 17:02
    0
    The maximum future dollar cost of meeting this obligation using the call option is $6,545,400

    Explanation:

    payable obligation = 750,000,000 YEN

    premium payable on call option = 750,000,000*0.012

    = $90,000

    the interest rate is 6%

    future value of call option premium = $90,000 (1+0.06)

    = $95,400

    As the expected future spot price is 109 YEN per dollar which is higher than exercise price of $0.0086

    Amount payable under call option = (750,000,000*$0.0086) + $95400

    = $6,545,400

    Therefore, The maximum future dollar cost of meeting this obligation using the call option is $6,545,400
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers