3. Trading in foreign exchange What are spot rates and forward rates? Purple Panda Importers, a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for 689 million, but the Japanese firm has 60 days before it must make the payment to Purple Panda Importers The spot exchange rate is 128.75 per dollar, and the 60-day forward rate is 133.45 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium. If the customer pays Purple Panda Importers the 689 million today, how much will Purple Panda Importers receive in dollars? $4.55 million $5.35 million $5.89 million $5.08 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, Purple Panda Importers would get more dollars if the Japanese firm paid off its account In 60 days/Today .