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Deal with foreign exchange fluctuations

You manufacture wine goblets. In mid June you receive an order for 10,000 goblets from Japan. Payment of ¥400,000 is due in mid December. You expect the yen to rise from its present rate of $1=¥130 to $1=¥100 by December. You can borrow yen at 6% per annum. What should you do?

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Since Yen is likely to appreciate against dollars, it is advisable to buy yen now and sell later. If the firm is not interested in any speculative gain but just want to maximize the exchange value of foreign currency to be received from business the firms should not do anything and wait till December and sell the yen when ...

Solution Summary

Discuss strategy to deal with foreign exchange fluctuation for a specific case where an exporter is expecting payment in foreign currency in future.