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3. Trading in foreign exchange Aa Aa E What are spot rates and forward rates? Lost Pigeon Aviation, a U.S. company, produces and exports industrial

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3. Trading in foreign exchange Aa Aa E What are spot rates and forward rates? Lost Pigeon Aviation, a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for X675 million, but the Japanese firm has 60 days before it must make the payment to Lost Pigeon Aviation The spot exchange rate is X130.11 per dollar, and the 60-day forward rate is 133.78 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? In the forward market, the yen is trading at a premium. The yen is trading at a discount in the forward market. If the customer pays Lost Pigeon Aviation the X675 million today, how much will Lost Pigeon Aviation receive in dollars? O O O O $5.71 million $4.93 million $5.19 million $5.97 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Lost Pigeon Aviation would get more dollars if the Japanese firm paid off its account

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