A multinational corporation has a subsidiary in Japan that generates revenue in Japanese yen (JPY) and a parent company in the United States that reports in US dollars (USD). The subsidiary is expected to generate JPY 100,000,000 in revenue in 6 months. The current spot rate is JPY 110 per USD, and the 6-month forward rate is JPY 105 per USD. The parent company wants to hedge the currency risk by entering into a forward contract. The forward contract has a notional amount of JPY 100,000,000 and a 6-month maturity. The corporation has to decide whether to enter into a forward contract or not. Calculate the net cash flow for the corporation in USD if it enters into the forward contract, assuming the current USD risk-free rate is 2% per annum and the forward contract is priced at fair value.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below Step 1 Calculate the revenue in USD The revenue generated by the subsidiary in Japan is J... View the full answer