Question

On July 15, 2016, you convert 670,000 U.S. dollars to Japanese yen in the spot foreign exchange market and purchase a six-month forward contract to convert yen into dollars. How much will you receive in US dollars at the end of six months? Use the data in Table 9-1 for this problem. (Round your answer to 2 decimal places. (e.g. 32.16)) Amount that you will receive in U.S. dollars at the end of six months Prev Next >

Answer 1

Initial Amount = $670000

Converting US dollar to Yen at current spot rate

To convert $670000 in Japanese Yen at current Spot rate on Friday 15 July 2016. we need to sell US dollars and purchase Yen

From interest rate Table or snapshot we get

Current Spot rate = 104.91 Yen / Dollar

So $6700000 = 670000 x 104.91 = 70289700 Yen

Purchasing 6 month forward contract to convert Yen to dollar after 6 months

6 month Forward rate = $0.0095320 / Yen

6 month forward contract with above forward rate is purchased to convert Yen to dollars

Amount you will receive in US dollar at the end of 6 months = 70289700 x 6 month forward rate =70289700 x 0.0095320 = 670001.4204 = $670001.42 (rounded to two decimal places)

Hence Amount you will receive in US dollar at the end of 6 months = $670001.42