P G India Procter And Gamble S Affiliate In India P G India Procures Much Of Its Toiletries Product Line From A Japan 1 (160.34 KiB) Viewed 28 times
P&G India. Procter and Gamble's affiliate in India, P&G India, procures much of its toiletries product line from a Japanese company. Because of the shortage of working capital in India, payment terms by Indian importers are typically 180 days or longer. P&G India wishes to hedge an 8.2 million Japanese yen payable. Although options are not available on the Indian rupee (Rs), forward rates are available against the yen. Additionally, a common practice in India is for companies like P&G India to work with a currency agent who will, in this case, lock in the current spot exchange rate in exchange for a 5.24% fee. Using the exchange rate and interest rate data in the popup window, , compare alternate ways below that P&G India might deal with its foreign exchange exposure. Assume a 360-day financial year. a. How much in Indian rupees will P&G India pay in 180 days without a hedge if the expected spot rate in 180 days is assumed to be ¥2.50536/Rs? ¥2.4371/Rs? ¥2.5747/Rs? b. How much in Indian rupees will P&G India pay in 180 days with a forward market hedge? c. How much in Indian rupees will P&G India pay in 180 days with a money market hedge? d. How much in Indian rupees will P&G India pay in 180 days with a currency agent hedge? e. What do you recommend? a. How much in Indian rupees will P&G India pay in 180 days without a hedge if the expected spot rate in 180 days is assumed to be ¥2.50536/Rs? Rs (Round to the nearest whole number.)
Spot rate ¥2.50536/Rs 180-day forward rate ¥2.4371/Rs Expected spot, 180 days ¥2.5747/Rs 180-day Indian rupee investing rate 7.54% 180-day Japanese yen investing rate 1.97% Currency agent's exchange rate fee 5.24% P&G India's cost of capital 12.66% Click on the icon located on the top-right corner of the data table in order to copy its contents into a spreadsheet
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