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a . Given the final contract value, what would the Japanese buyer believe they are paying per pack? The Japanese would believe they are paying
a Given the final contract value, what would the Japanese buyer believe they are paying per pack?
The Japanese would believe they are paying per pack for $Round to the nearest cent.
b What is the amount of the currency exposure for Truckee Tec?
The amount of the currency exposure for Truckee Tec is
million. Round to two decimal places.
c If the swap agreement is for a year loan at paid quarterly, what is the principal notional principal of the loan obligation needed to cover the exposure?
The notional principal of the loan obligation needed to cover the exposure is
'million. Round to two decimal places.
The principal, interest, and total payments of the Japanese loan for quarter are: Enter negative numbers in million Japanese yen for cash outflows and round to two
decimal places.
Total payment yen Truckee Tec's Yen Exposure. Truckee Tec is a privately held battery manufacturer located just outside of Reno, Nevada. The company is one of the leading manufacturers
of lithiumion batteries, specifically for the automobile market. Truckee has been in intense contract negotiations with a Japanese automaker for months. It was late
December and both sides wanted to conclude a deal before the new year.
The Japanese automaker wanted a twoyear supply agreement for Lithiumion battery packs per year. Battery prices had been dropping dramatically for years,
but Truckee's current sales price of $ per battery for the model OR had held firm for months. The buyer was pushing for a lower unit price, but Truckee wanted a
longer contract with higher volumes in return. After months of negotiations, the buyer agreed to increase the contract to years, and increase annual purchases to units.
But in return, the buyer wanted a price of $ per unit, and it wanted to pay in Japanese yen. Truckee had countered with the following proposal. At an average price of
$ per unit, and a current spot exchange rate of Truckee proposed a contract of units per year, for years, with an annual purchase amount of
The buyer accepted the counterproposal in hours and a sale agreement was signed and posted. The deal was done.
Almost immediately the corporate treasury group at Truckee was upset about the contract. They argued that the Japanese yen had begun to plummet in value against the dollar
in the past two months, so accepting payment in Japanese yen was too risky. Also, the quote had been based on a spot rate value of but the rate had already moved to
over the past two weeks.
Truckee's corporate treasury wanted to move immediately to hedge the longterm exposure. Internally the group had discussed that it was technically an anticipated
transaction exposure, not a pure operating exposure, since it was a single transactionbut contractual. It would continue over a threeyear period, but none of it was as yet on
the books. After consulting with their bankers, they wanted to use a crosscurrency swap to manage the Japanese yen risk, a swap in which Truckee would pay yen and receive
dollars. Their banker offered a swap where Truckee would receive US dollar LIBOR in return for paying Japanese yen at The swap agreement would be for years and
all payments made quarterlyto match the expected yen cash inflow from the Japanese customer.
a Given the final contract value, what would the Japanese buyer believe they are paying per pack?
b What is the amount of the currency exposure for Truckee Tec?
c If the swap agreement is for a year loan at paid quarterly, what is the principal notional principal of the loan obligation needed to cover the exposure?
d If both the Japanese buyer and the swap agreement perform as expected, what is the net exposure in Japanese yen remaining after the swap to Truckee?
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