Based manufacturer of industrial equipment

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Reference no: EM13885103

Bobcat Company, US-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heaby equipment. The purchase price was Won 7,500 million. Won 1,000 million has already been paid, and the remaining Won 6,500 million is due in six months. The current spot rate is Won 1,110/$, and the 6-month forward rate is Won 1,175/$. The 6-month Korean won interest rate is 16% per annum, the 6-month U.S dollar rate is 4% annum. Bobcat can invest at these interest rates, or borrow at 2% per annum above those rates. A 6-month call option on won with a Won 1,200/$ strike rate has a 3.0% premium, while the 6-month put option at the same strike rate has a 2.4% premium.

Bobcat can invest at the rates given above or borrow at 2% per annum above those rates. Bobcat's weighted average cost of capital is 10%. Compare alternate ways that bobcat might deal with its foreign exposure. What do you recommend?

Reference no: EM13885103

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