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Hedge positions should the organization adopt

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An US organization has a ¥20,000,000 account payable in 3 months. The current Japanese yen (¥)/US Dollar ($) spot exchange rate is ¥118.95/$. The organization expects the spot rate in 3 months to be ¥110.95/$. The 3-month forward exchange rate is ¥115.95/$. The US Dollar ($) 3-month borrowing rate is 8.00% per annum and the US Dollar ($) 3-month investment rate is 6.00% per annum. The Japanese yen (¥) 3-month borrowing rate is 8.00% per annum and the Japanese yen (¥) 3-month investment rate is 4.00% per annum. The organization's weighted average cost of capital is 16% per annum. The organization is considering three hedge positions:

Remaining unhedged, forward market hedge and money market hedge. Which of these hedge positions should the organization adopt?

Reference no: EM131504410

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