Question

BM sold computer chips from NEC, a Japanese electronics concern, will receive ¥166 million in three months. Currently, the spot exchange rate is ¥103/$ and the three-month forward rate is ¥120/$. The three-month money market interest rate is 7 percent per annum in the U.S. and 9 percent per annum in Japan. The management of IBM decided to use the money market hedge to deal with this yen receivable.

(a) Compute the dollar revenue (3-month later) of the yen receivable (round your answer to zero decimal, e.g., 39,124)

Answer 1

focig comendy recorghe I months compones hay of 4 166 million money manoor hedge 1 Create borong Foreign commency payable by hom foreign country. Foreign cemency receivable Amount to be bonored It periodic branding rate info. 9 166miuin It 0.094/2. 166 millim 1.025 2 162.3474 millim 22 convert the borrowed amount into locas Currency spotrate using 4103 182 26 162-3474 million 1.5768 million.

7 per Omnicom D Deposit The converted amount in localbat e for 2 months $1576 mium ( 140*07 x 7.) 81.576 millimx 1.0175 8 1.60158 milion $ 1.604 million Doulon revenue