4. Mitsubishi Heavy Industry (MHI) in New Jersey sold a ship to Princess Cruise Company (PCC) in Bremen. PCC owes MHI 500 million euros in one year. The current spot rate is 1.18 $/€ and the one-year forward rate is 1.20 $/€. The annual interest rate is 3% in Europe and 5% in the U.S. MHI can also buy a one-year call option on euros at the strike price (E) of 1.21 $/€ for a premium of 0.015 $ per euro. MHI can also buy a put option on euros at same strike price (E) of 1.21 $/€ for a premium of 0.042 $ per euro. You are the treasurer of MHI, so you have an account receivable. a) Compute the future dollar revenue of meeting this collection using the money market hedge and the forward hedge. b) Calculate the minimum amount to be collected hedging with options. c) Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar revenue of meeting this collection when the option hedge is used. d) At what future spot rate do you think MHI may be indifferent between the option and M-M hedge?

OneUSF, a U.S. MNC based in Florida, is considering making a fixed direct investment in Italy. The Italian government has offered OneUSF a concessionary loan of €2,700,000 at a rate of 3 percent per annum. The current spot rate is $1.36/€1.00 and the expected inflation rate is 4% in the U.S. and 2% in Italy. The normal borrowing rate is 7 percent in dollars and 6 percent in euros. The loan schedule calls for the principal to be repaid in three equal annual installments. The marginal corporate tax rate in Italy and the U.S. is 35%. What is the present value of the benefit of the concessionary loan? (Please keep 2 digits in decimals to get the right answer) $117,160 None of the above with the $10,000 of the correct answer $51,360 $1,165,209 $1,310,116

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €19 million which is payable in one year. The current EUR/USD rate is 1.0651 and the one-year forward rate is 1.0898. The annual interest rate is 4.9% in the U.S. and 2.7% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. It is considering to hedge borrowing euros from Credit Lyonnaise against the euro receivable. How much will they receive in one year? (USD, no cents) The answer is 20,670,407 I cannot figure out how. Thanks!

Use the following information for the next 8 questions. UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20 per euro. It observes that1. The one-year interest rate for euros is 8%, and the one-year interest rate for U.S. dollars is 3%.2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.18 per euro, and a premium of $0.02 per euro.3. In the forward market, the one-year forward rate exhibits a 5% discount from the current spot exchange rate.   4 If UCD decides to use options contracts to hedge its receivables, UCD shall