Ford imports automotive parts from Mazda every month, invoiced in JPY. Both parties agree that purchases will be made at the current JPY/USD exchange rate as long as it falls in the range ¥115/$ and ¥125/$. If the rate falls outside of this range on the payment date, the difference will be shared equally between them. Assume a ¥25,000,000 payable. As long as the Yen stays within the range, Ford will pay between $200,000 (at ¥125/$) and $217,391.30 (at ¥115/$) for the ¥25,000,000 payable.
Assume that the Yen appreciates to ¥110/$, which is ¥5/$ above the specified range. With the risk-sharing arrangement described above, how much will Ford pay in USD? Enter your answers as whole numbers without any decimals.
A. $244,444
B. $211,111
C. $222,222
D. $199,998
Amount paid by ford = Amount at Yen 115/$ rate + half of extra cost
= $217,391.30 + (227,272.73 - 217,391.30)/2
= $222,332.01 approx.
Hence, the answer is
C. $222,222
Ford imports automotive parts from Mazda every month, invoiced in JPY. Both parties agree that purchases...
Ford's North American operation import automotive parts from Mazda (Japan) every month, year after year. They agree that all purchases made by Ford will be made in Japanese Yen at the spot rate as long as the FX rate is between $.0080/yen and $.0087/yen. If, however, the FX rate falls outside this range, Ford and Mazda will share the difference equally. Ford has an account payable of Yen 25,000,000 for the month of March. 1. The spot rate at the...