Yoshimatsu Heavy Industries expects a €1,000,000 receivable due in one year. Outline a strategy using a money market hedge that will eliminate foreign exchange rate risk. 1-year rates of interest Borrowing Lending Dollar 4.5 % 4.00 % Euro 6.00 % 5.25 % Yen 1.00 % 0.75 % Spot exchange rates 1-year Forward Rates $ 1.25 = € 1.00 $ 1.2262 = € 1.00 $ 1.00 = ¥ 100 $ 1.03 = ¥ 100

Multiple Choice

Borrow €943,396 today; convert EUR to USD at the spot exchange rate; convert these USD to JPY at the spot rate and receive ¥117,924,500.

Lend €943,396 today; convert EUR to USD at the spot exchange rate; convert these USD to JPY at the spot rate.

Convert ¥117,924,500 to USD at the spot rate; convert USD to EUR at the spot rate; lend €943,396 at 5.25%.

Borrow €950,119 today; convert EUR to USD at the spot exchange rate and receive $1,187,649; convert these USD to JPY at the spot rate.

None of the options.

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