Assume that you are an American company, importing camera from Japan. You must pay for it in 30 days. You pay 200,000 yen for each imported camera. The current dollar/yen spot exchange rateis USD/JPY, $1=120 yen. You can sell the cameras for $2000 each. You do not have the money to pay the invoice till you sell the cameras. Over the next 30 days the dollar may depreciates against the yen(Yen become stronger), for example at the new rate $1= 95 yen. To ensure or hedge against this risk, you can buy a forward contract. This is called forward exchange rates. For most currencies forward exchange rates are quoted for 30, 90, and 180 days into the future. Lets assume that 30 day forward exchange rates will be $1= 110 yen. If you dont buy a forward contract and the actual spot rates at the date of payment to Japan is $1= 80 yen, do you gain or lose at that rate?

Answer all following questions. Refer to each question number and show your calculations for each question

1. Calculate at the exchange rate of USD/JPY, $1=120 yen, how much each camera costs you in USD?

2. How much is your profit per camera?

3. At the exchange rate of $1= 95 yen, how much each camera will cost you?

4. At that cost can you make a profit?

5. Does the forward contract rate of $1= 110 yen generate a profit for you?

6. Calculate how much it each camera cost without a forward contract rate?