ZuoTi.Pro
Question

Your Los Angeles company has just sold about Y20,000,000 in goods to your customer in Japan,...

Your Los Angeles company has just sold about Y20,000,000 in goods to your customer in Japan, giving her 180 day payment terms. No L/C is involved. Today's spot rate for yen is Y208/$1. By researching the forward rates, you see the 6 month forward rate is Y209/$1.

1). What might you do to protect your profit margin? to protect your profit margin?

2). Is this forward quote indicating that forward yen is at a premium or a discount against the US$? How do you know that? Is it important?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

1.I will enter into a forward contact to sell Yuan after 6 months at forward rate as after 6 months in forward Yuan is at discount against dollars.As I'm bound to receive payment in yuans ,We have to adjust by selling the same currency.

2. After 6 months,Yuan is at discount as One dollar is worth more yuans in next 6 months. Yes it is important to know to hedge one's position.

0 0
Add a comment
Know the answer?
Add Answer to:
Your Los Angeles company has just sold about Y20,000,000 in goods to your customer in Japan,...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Vatic Capital.  Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her...

    Vatic Capital.  Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ​¥121.00/$. She must choose between the following 90​-dayoptions on the Japanese​ yen: Option Strike Price Premium Put on yen yen¥125/$ ​$0.00003​/yen¥ Call on yen yen¥125​/$ ​$0.00046​/yen a. Should Cachita buy a put on yen or a call on​ yen?...

  • Vatic Capital. Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her...

    Vatic Capital. Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ​¥119.00​/$. She must choose between the following 90​-day options on the Japanese​ yen: LOADING.... a. Should Cachita buy a put on yen or a call on​ yen? b. What is​ Cachita's breakeven price on the option purchased in part...

  • Vatic Capital. Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her...

    Vatic Capital. Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ¥122.00122.00 /$.She must choose between the following 9090 -day options on the Japanese yen: Option   Strike Price (yen/$)   Premium ($/yen) Put on yen   124 0.00003/¥ Call on yen   124 0.00046/¥ . a. Should Cachita buy a put on yen...

  • Kamada: CIA Japan (A) Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring...

    Kamada: CIA Japan (A) Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,000,000 or its yen equivalentina covered interest arbitrage between US dollars and Japanese y. He faced the following exchange rate and interest rate quotes Is CIA profit possible? If so, how? Arbitrage funds available Spot rate (W/S) 180-day forward rate (1/5) U.S. dollar annual interest rate Japanese yen annual interest rate $ 5.000.000 118 59 117.86...

  • 6. Hedging with forwards, options and money market. Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy...

    6. Hedging with forwards, options and money market. Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million yen payable in one year. The current spot rate is ¥124/$ and the one year forward rate is ¥110/$. The annual interest rate is 5 percent in Japan and 8 percent in the U.S. PCC can also buy a oneyear call option on yen at the strike price of $0.0081 per yen for a premium of 0.014 cents...

  • You are the manager of a U.S. company situated in Los Angeles and manages the import/export...

    You are the manager of a U.S. company situated in Los Angeles and manages the import/export division of the company. The company distributes (resells) a variety of consumer products imported to the U.S.A from France and also exports goods manufactured in the U.S.A. to Britain. Therefore, your company is very much dependent on the impact of current and future exchange rates on the performance of the company. Scenario 1: You have to estimate the expected exchange rates one year from...

  • BF2207 Question 2 Suppose that, six months ago, you sold a call option on 1,000,000 euros...

    BF2207 Question 2 Suppose that, six months ago, you sold a call option on 1,000,000 euros (EUR) with an expiration date of six months and an exercise price of 1.1780 United States dollars (USD). You received a premium on the call option of 0.045 USD per unit. Assume the following: • Money market interest rates for EUR are constant through time and equal 5% for all maturities. • Money market interest rates for USD are constant through time and equal...

  • Instructions: Show all calculations in detail. No partial credit will be given for just 1) Assume...

    Instructions: Show all calculations in detail. No partial credit will be given for just 1) Assume the following information: U.S. deposit rate for 1 year U.S. borrowing rate for 1 year New Zealand deposit rate for 1 year - 8% New Zealand borrowing rate for 1 year 10% New Zealand dollar forward rate for 1 year $.40/NZS New Zealand dollar spot rate - $.39/NPS Also assume that a U.S. exporter denominates its New Zealand exports in NZS and expects to...

  • 1. A HIGHER/ LOWER OR SAME 2. DECREASES. APPRECIATES 3. DECREASES. APPRECIATES 4. Multinational Financial Management:...

    1. A HIGHER/ LOWER OR SAME 2. DECREASES. APPRECIATES 3. DECREASES. APPRECIATES 4. Multinational Financial Management: Interest Rate Parity The general relationship between spot and forward exchange rates is specified by a concept called interest rate parity. It specifies that investors should expect to earn (-Select- return in all countries after adjusting for risk. The relationship is expressed in the following equation: Forward exchange rate – 1+th Spot exchange rate 1+rf Both the forward and spot rates are expressed in...

  • 13.05 Currency Exchange Rates Custom Shutters, Inc., manufactures plantation shutters according to customer order. The company...

    13.05 Currency Exchange Rates Custom Shutters, Inc., manufactures plantation shutters according to customer order. The company has a reputation for producing excellent quality shutters that fit virtually any size or shape of window. Sales are made in all 50 states. On July 1, Custom Shutters received orders from contractors in Switzerland and Japan. Lee Mills, president and co-owner of Custom Shutters, was delighted. The Swiss order is for shutters priced at $64,000. The order is due in Geneva on September...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT