3 Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 900 million yen payable in one year.

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3 Princess Cruise Company Pcc Purchased A Ship From Mitsubishi Heavy Industry For 900 Million Yen Payable In One Year 1 (23.17 KiB) Viewed 59 times

3 Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 900 million yen payable in one year. The current spot rate is 1144/$ and the one-year forward rate is 130/$. The annual interest rate is 7 percent in Japan and 10 percent in the United States. PCC can also buy a one-year call option on yen at the strike price of $.0061 per yen for a premium of 14 cents per yen. a. Compute the future dollar costs of meeting this obligation using the money market and forward hedges. Money Market Forward Hedge b. Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected futuro dollar cost of meeting this obligation when the option hedge is used Expected future dollar cost