Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose the /USD exchange rate is currently 1.5 /USD. Further suppose a US firm is going to receive 18 million in a month's time from

Suppose the /USD exchange rate is currently 1.5 /USD. Further suppose a US firm is going to receive 18 million in a month's time from an investment they made in Japan. If the exchange rate moves to 1.8 /USD and the firm does not enter into any forward contract to hedge its foreign exchange risk, the amount in US dollars this firm would receive from converting that 18 million yens to US dollars at the new exchange rate of 1.8 /USD is ____________.

Now suppose the company enters into a forward agreement now, agreeing to sell 18 million (for dollars) in one month at a locked-in exchange rate of 1.5 /USD. The amount in U.S. dollars that this U.S. firm will receive (as per the forward contract) is ___________.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Law With UCC Applications

Authors: Gordon Brown, Paul Sukys

13th Edition

0073524956, 978-0073524955

Students also viewed these Finance questions