Question

P&G India wishes to hedge an 8.5 million Japanese yen payable. Although options are not available on the Indir m India il current the pop i Data Table X hange ex 4219/RS in 180 d in 180 in 180 in 180 in 180 Spot rate ¥2.50477/Rs 180-day forward rate ¥2.4219/Rs Expected spot, 180 days ¥2.5994/Rs 180-day Indian rupee investing rate 7.63% 180-day Japanese yen investing rate 1.84% Currency agent's exchange rate fee 5.13% P&G India's cost of capital 12.69% Click on the icon located on the top-right corner of the data table in order to copy its contents into a spreadsheet Print Done click Check Answer. Clear All - ONA tv

Answer 1

a. Calculate the amount paid in Indian rupees as follows:

Therefore, the amount in Indian rupee Rs.3,393,525.15

Therefore, the amount in Indian rupee Rs.3,509,641.19.

Therefore, the amount in Indian rupee Rs.3,269,985.38

b. Calculate the amount paid in Indian rupees with forward market hedge as follows:

Therefore, the amount in Indian rupee Rs.3,509,641.19.

c. Calculate the amount paid in Indian rupees with money market hedge as follows:

Money market Hedge
Amount payable ¥	8,500,000
Discount factor for ¥ for 180 days	0.99088
Amount payable in 180 days ¥	8,422,480
Current spot rate (¥/Rs)	2.50477
Current amount (Rs)	3,362,576.20
Company’s cost of capital is	1.06345
Future value of money market hedge (Rs) (3,362,576.20×1.06345)	3,575,931.66

d. Calculate the amount paid in Indian rupees with currency agent hedge as follows:

Indian Currency agent hedge
Amount payable (¥)	8,500,000
Current spot rate (¥/Rs)	2.50477
Current amount (Rs)	3,393,525.15
Plus: Agent fee (5.13%) (Rs)	174,087.99
Company’s cost of capital is	1.06345
Total future value of agent’s fee (Rs)	185,133.88
Total amount payable (Rs)	3,578,659.03

Note: As per HOMEWORKLIB RULES, answered first four subparts.