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An American purchases items from a Japanese firm and was billed 125 million yen payable in three months. The current spot exchange is yen105/$ and
An American purchases items from a Japanese firm and was billed 125 million yen payable in three months. The current spot exchange is yen105/$ and the three month forward rate is yen100/$. The three-month money market interest rate is 7% per annum in thr U.S. and 8% per annum in Japan. The US company deceided to use the money market hedge to deal with the yen account payable. a) compute the PV of the 125 million Yen b) Calculate the cost of US $ today to by the yen.
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