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Orangutan Wigs, Inc. wants to borrow $10 million for a period of 1 year. In addition to being able to borrow in dollars (USD), it has the option to borrow this money in Japanese yen (JPY). The relevant interest rate and exchange rate information is provided below:
USD Interest Rate = 0.75%
JPY Interest Rate = 0.25%
Spot JPY/USD Exchange Rate = 92.2850 JPY/USD
1-year forward JPY/USD Exchange Rate = 92.39 JPY/USD
All interest is paid on an annual basis.
You are the CFO of Orangutan Wigs, Inc. Devise the zero-uncertainty, lowest-cost borrowing strategy for your company.
1- Borrow and repay in JPY (with zero-uncertainty):
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