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 future dollar cost of meeting this obligation using the forward hedge is
A) $6,450,000.
B) $6,545,400.
C) $6,653,833.
D) $6,880,734.
Correct Answer:
Verified
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