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Company A in dollar zone owes Company B in yen zone in the amount of 25 million (A/P), and the payment is scheduled in 3
Company A in dollar zone owes Company B in yen zone in the amount of 25 million (A/P), and the payment is scheduled in 3 months. A and B have agreed on the following risk-sharing arrangement on the payment day: if the spot exchange rate turns out to be between 115/$ - 125/$, then they settle at that spot rate; if the spot rate turns out to be outside this range, A and B split the burden/risks 50:50. Suppose the spot rate turns out to be 110/$ on the payment day, how much does A owe B?
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