A US importer is concerned about the appreciation of JPY against USD due to JPY payable of JPY400,000,000 on February 1st ( in 167 days). To hedge (protect himself/herself) the position, importer decides to use futures markets. Currently CME (Chicago Mercantile Exchange) JPY contracts (12,500,000 each) with closest maturity are traded at USD0.8350 per 100 JPY. Futures contract expires 18 days after on February 19th. . Suppose the importer takes a futures position equal to 50% of its cash position (JPY200m) at USD0.8350. Also Company treasurer buys an over the counter call option on JPY150m portion of the expected cash inflow at a strike price of USD0.8333 per 100 JPY, at a premium of 2% (2% is the cost of premium) and leaves JPY50m portion of the exposure uncovered. At the time the option was purchased, the spot rate was JPY117. On February 1st, Futures contract price is USD0.8130 per 100 JPY and the JPY/USD spot price is 122. Calculate the effective cost of acquiring 100 JPY for the importer? (Ignore the time value of the option premium)
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