Question

Mauna Loa Macadamia. Mauna Loa​ Macadamia, a macadamia nut subsidiary of​ Hershey's with plantations on the slopes of its namesake volcano in​ Hilo, Hawaii, exports macadamia nuts worldwide. The Japanese market is its biggest export​ market, with average annual sales invoiced in yen to Japanese customers of ¥1,920,000,000. At the present exchange rate of ¥128​/$, this is equivalent to $15,000,000. Sales are relatively equally distributed throughout the year. They show up as a ¥40,000,000account receivable on Mauna​ Loa's balance sheet. Credit terms to each customer allow for 60 days before payment is due. Monthly cash collections are typically ¥160,000,000. Mauna Loa would like to hedge its yen​ receipts, but it has too many customers and transactions to make it practical to sell each receivable forward. It does not want to use options because they are considered to be too expensive for this particular purpose.​ Therefore, they have decided to use a​ "matching" hedge by borrowing yen. Assume the annual interest rate on the loan is 3.50​%.

a.How much should Mauna Loa borrow in U.S.​ dollars? (Round to the nearest dollar)

b.What should be the terms of payment on the yen​ loan?

Answer 1

a)

b)

Payment should be based on monthly cash flows. Payments should be made only on principal.