. A Canadian company is exporting lumber to Japan. The sales agreement calls for a payment of 7,000,000 yen to the Canadian company in 60 days. The current spot rate is 102 yen per dollar

1. Is the Canadian company worried that the yen may appreciate or depreciate in value over the next 60 days?
2. If the Canadian company decides to hedge using a forward contract and the 60-day forward rate is 100.5 yen per dollar, how many dollars will it receive in 60 days?
3. By how much is the Canadian company better or worse off if it does not hedge and the spot rate in 60 days is (i) 98 yen per dollar or (ii) 103 yen per dollar?

21-10. You are the vice president of International InfoXchange, headquartered in Toronto. All shareholders of the firm live in Canada. Earlier this month, you obtained a loan of five million US dollars from a bank in Chicago to finance the construction of a new plant in St. Louis. At the time the loan was received, the exchange rate was $1.05 Canadian to the US dollar. By the end of the month, it has unexpectedly dropped to $0.98. Has your company made a gain or loss as a result, and by how much?

21-13. Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in Canada and 5.3% in Germany. In the spot market, 1 euro equals $1.30.

1. Is the 90-day euro forward rate at a premium or discount relative to the spot rate?
2. What is the 90-day euro forward rate?