1. Using any website like the Wall Street Journal or the Economist.com, obtain q
ID: 2620689 • Letter: 1
Question
1. Using any website like the Wall Street Journal or the Economist.com, obtain quotes for foreign exchange rates for the Yen versus the US dollar, and answer the following questions (6 points) a) What is the spot exchange rate for the US dollar vis-à-vis the yen? b) Suppose one year ago, the spot exchange rate for the yen was 100/S. Comparing that to today's quote, has the Japanese yen appreciated or depreciated? c) Suppose you export 100,000,000 (100 million) yen worth of goods to Japan today (what is that worth at Monday's spot rate?) But your buyer will make the payment only 90 days from now. Suppose further that the buyer will make the payment in Japanese yen only. ·Suppose the actual exchange rate for the yen, 90 days from now, turns out to be ¥100S. How many dollars will you get 90 days from now? Suppose the actual exchange rate for the yen, 90 days from now, turns out to be 120/S. How many dollars will you get 90 days from now? » Suppose you are like me, a conservative old man, who does not like this exchange rate uncertainty. Is there anything you could do to get rid of the uncertainty?Explanation / Answer
a) spot exchange rate is 1 usd= 110.74 Japanese Yen
b) As today you need 110.74 japanese yen to get 1 USD compared to last year you need only 100 japanese yen to get 1 USD so the Japanese YEn depreciated.
c) as 110 japanese yen is 1 USD , 100 million yen is 909090.9091 USD
90 days from now means you have to convert after 90 days basing on that spot rate that day. or else you can fix that rate by undergoing a forward cntract with the buyer or buy a future contract with the exchange so that you can hedge.
d) 90 days rate is 100 japanese yen for 1 usd so for 100 million yen is 1000000 USD . So you get 1000000 USD
e) if rate is 120 japanese yen for 1 USD then 120 million yen is 833333 USD. So you get 833333 USD
f) To get rid of this uncertainity buy a future/ forward contract. This is called currency hedging.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.