Reference no: EM132869325

Bobcat? Company, U.S.-based manufacturer of industrial? equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was Won7,700 million.? Won1,000 million has already been? paid, and the remaining Won6,700 million is due in six months. The current spot rate is Won1,107?/$, and the? 6-month forward rate is Won1,167?/$. The? 6-month Korean won interest rate is 16?% per? annum, the? 6-month U.S. dollar rate is 5?% per 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 Won1,200?/$ strike rate has a 3.8?% ?premium, while the? 6-month put option at the same strike rate has a 3.3?% 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 11?%. Compare alternate ways below that Bobcat might deal with its foreign exchange exposure.  

Question 1: How much in U.S. dollars will Bobcat pay in 6 months without a hedge if the expected spot rate in 6 months is assumed to be Won1,107?/$? Won1,167?/$?

Question 2: How much in U.S. dollars will Bobcat pay in 6 months with a forward market? hedge?

Question 3: How much in U.S. dollars will Bobcat pay in 6 months with a money market? hedge?

Question 4: How much in U.S. dollars will Bobcat pay in 6 months with an option hedge if the expected spot rate in 6 months is assumed to be less than Won1,200?/$? To be Won1,300?/$?

Question 5: What do you? recommend?

Question 6: How much in U.S. dollars will Bobcat pay in 6 months without a hedge if the expected spot rate in 6 months is assumed to be Won1,107?/$?