Question: Nikken Microsystems (B). Assume that Nikken Microsystems prefers to receive U.S. dollars rather than euros for the trade transaction described in problem 2. It is considering two options:
1) sell the acceptance for euros at once and convert the euros immediately to U.S. dollars at the spot rate of exchange of $1.00/€ or
2) hold the euro acceptance until maturity but at the start sell the expected euro proceeds forward for dollars at the 3-month forward rate of $1.02/€.
a. What are the U.S. dollar net proceeds received at once from the discounted trade acceptance in option 1?
b. What are the U.S. dollar net proceeds received in three months in option 2?
c. What is the break-even investment rate that would equalize the net U.S. dollar proceeds from both options?
d. Which option should Nikken Microsystems choose?