How could hawaii co. achieve low-cost financing

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Hawaii Co. just agreed to a long-term deal in which it will export products to japan. it needs funds to to finance the production of the products that it will export. the products will be denominated in dollars. The prevailing US long-term interest rate is 9 percent versus 3 percent in japan. assume that the interest rate parity exists and tat Hawaii Co. believes that the international fisher effects holds.

a. should Hawaii Co finance its production with the yen and leave itself open to exchange rate risk? Explain
b. should Hawaii Co. finance its production with the yen and simultaneously engage in forward contracts to hedge its exposure to exchange rates risk?
c. how could Hawaii Co. achieve low-cost financing while eliminating its exposure to exchange rates risk?

 

Reference no: EM13305057

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