Question
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 ___________.
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