A U.S. company orders merchandise from a Japanese company at a cost of 100 million yen. The merchandise must be paid for in yen
|
Yen per $1 |
$ per 1 yen |
| Spot |
97.57 |
0.01025 |
| 30-day forward |
97.45 |
0.01026 |
| 90-day forward |
96.31 |
0.01038 |
| 180-day forward |
92.45 |
0.01082 |
a. How many U.S. dollars must be raised if payment is due today?
b. Is the dollar appreciating or depreciating against the yen? Explain.
c. How many U.S. dollars must be raised if payment is due in 90 days?
d. Who bears exchange rate risk, the U.S. company or the Japanese company or both? Explain.
e. Describe 3 ways in which the company can reduce exchange rate risk.