4. Is your choice in question 3 something that the company should do for all the foreign currencies that it might have to manage or only for the Japanese yen?

Explain. Exchange rate fluctuations between the Japanese yen, the euro, and the US dollar posed serious problems for Strato Designs (the name of the company is disguised)

during the period 1999
–
2004. The California company produces graphics components for 9 of the top 10 PC makers, other specialty logic chips for PCs, and modems. Approximately 35% of its sales are to Japanese companies, and approximately 10% to European companies.

Japanese customers require that prices be quoted in yen, and many European customers are now requiring that prices be quoted in euros. Payments in foreign currencies could, of course, be converted to dollars at the spot (current) exchange rate when received. However, when the yen or euro has increased in value between the time of price quotation and the receipt of payment, it means a windfall profit for Strato Designs. A decrease in the value of the yen or euro means an exchange loss that might exceed the margin on the sale, resulting in a loss on the sale.