You are a financial advisor to a U.S. corporation that expects to receive a paym
ID: 2737880 • Letter: Y
Question
You are a financial advisor to a U.S. corporation that expects to receive a payment of 40 million Japanese yen in 180 days for goods exported to Japan. The current spot rate is 100 yen per U.S. dollar (Esy = 0.01000). You are concerned that the U.S. dollar is going to appreciate against the yen over the next six months. Assuming the exchange rate remains unchanged, how much does your firm expect to receive in U.S. dollars? How much would your firm receive (in U.S. dollars) if the dollar appreciated to 110 yen per U.S. dollar (ES,Y = 0.00909)? Describe how you could use an options contract to hedge against the risk of losses associated with potential appreciation in the U.S. dollar.Explanation / Answer
a.
100 Yen = 1 USD
1 Yen = 0.01 USD
40,000,000 Yen = 40,000,000 × 0.01 USD = 400,000 USD
Answer: The firm expects to receive 400,000 USD
b.
110 Yen = 1 USD
1 Yen = 0.00909 USD
40,000,000 Yen = 40,000,000 × 0.00909 USD = 363,600 USD
Answer: The firm expects to receive 363,600 USD
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.