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2. Hensley Manufacturing Co. has purchased a robotic welding machine from a Japanese firm for...

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Finance

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2. Hensley Manufacturing Co. has purchased a robotic welding machine from a Japanese firm for 8 million and has to make payment in 60 days. The current spot exchange rate is 110.40/S and the 60 day forward rate is 109.36/$. The corporate treasurer expects the yen to be at 112/$ in 60 days. Interest rates available to the firm are (invest/borrow) 2.6/4.2% p.a. in USD and 1.1/3.2% p.a. in Yen. The Treasurer is also considering using FX options to hedge this A/P. Call options with a strike of 110/$ and a premium of 3% and put options with a strike of 110/$ and a premium of 4% are available from the firm's bank. Calculate the expected cost of the unhedged, forward contract, money market, and option hedges and make a recommendation

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