Compute the expected future dollar cost of meeting

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Question: Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry 500 million yen in one year. The current spot rate is 114.12 yen per dollar and the one-year forward rate is 111.96 yen per dollar. The annual interest rate is 0.6% in Japan and 3.0% in the U.S. PCC can also buy a one-year call option on yen at the strike price of $.008900 per yen for a premium of .017 cents per yen. Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used. (USD,no cents)

Reference no: EM133290556

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