caterpilar (us) just purchased a Korean company that produces nuts and bolts for heavy equipment.The purchase price was won7,030 million.Won 6,030 million is due in six months.The current spot rate is won 1,200/usd,and the six-month forward rate is won 1,260/usd.Additional data: six month call option on korean won at w1200/usd:3% premium.
caterpilar an invest at the rates given in the preceding table,or borrow at 2% perannum above those rates.Cat's weighted average cost of capital is 10%.Compare alternateways that caterpilar might deal with its foreign exchange exposure.what do you recommend and why?