Question
Reuth, Inc. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 10,000,000 yen and net outflows
Reuth, Inc. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 10,000,000 yen and net outflows of 120,000 pounds. The present exchange rate of the Japanese yen is $.009 while the present exchange rate of the British pound is $1.30. Reuth, Inc. has not hedged its positions. The yen and pound movements against the dollar are highly and positively correlated. If the dollar strengthens, then Reuth, Inc. will:
benefit, because the dollar value of its pound position exceeds the dollar value of its yen position.
be adversely affected, because the dollar value of its yen position exceeds the dollar value of its pound position.
be adversely affected, because the dollar value of its pound position exceeds the dollar value of its yen position.
none of the options listed
benefit, because the dollar value of its yen position exceeds the dollar value of its pound position.
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