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What are spot rates and forward rates? Green Rabbit Transportation Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale
What are spot rates and forward rates? Green Rabbit Transportation Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for yen 675 million, but the Japanese firm has 60 days before it must make the payment to Green Rabbit Transportation Inc. The spot exchange rate is yen 127.50 per dollar, and the 60-day forward rate is yen 132.10 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? In the forward market, the yen is trading at a premium. The yen is trading at a discount in the forward market. If the customer pays Green Rabbit Transportation Inc. the yen 675 million today, how much will Green Rabbit Transportation Inc. receive in dollars? $5.29 million $6.08 million $5.82 million $6.35 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Green Rabbit Transportation Inc. would get more dollars if the Japanese firm paid off its account
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