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At the end of this month, you ( owner of a U . S . firm ) are meeting with a Japanese firm to which
At the end of this month, you owner of a US firm are meeting with a Japanese firm to which you will try to sell supplies. If you receive an order from that firm, you will obtain a forward contract to hedge the future receivables in yen. As of this morning, the forward rate of the yen and spot rate are the same. You believe that interest rate parity holds.This afternoon, news occurs that makes you believe that the US interest rates will increase substantially by the end of this month, and that the Japanese interest rate will not change. However, your expectations of the spot rate of the Japanese yen are not affected at all in the future. How will your expected dollar amount of receivables from the Japanese transaction be affected if at all by the news that occurred this afternoon? Explain.If US interest rates increase, then the forward rate of the yen will exhibit a Therefore, if you hedge your receivables at the end of this month, the dollar amount to be received would be
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