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Currency Exchange for Exporters Between U.S. and Japan

Use the following information to answer questions 1 and 2. The current exchange rate between the U.S. dollar and the Japanese yen is $1 = 102.690 yen. The one month forward rate is $1 = 102.505 yen. The two month forward rate is $1 = 102.349 yen. The three month forward rate is $1 = 102.207 yen.

1. How would a U.S. exporter which receives 395,000 yen in 30 days contract in the forward market to pay the future invoice? How many dollars would the exporter receive? How much did the company make or lose on the transaction compared to the spot market? Explain your answer.

2. How would a Japanese exporter which receives $37,500 in 30 days contract in the forward market to convert to yen? How many yen would the exporter receive? How much did the company make or lose on the transaction compared to the spot market? Explain your answer.

Solution Preview

1. The U.S. exporter would receive U.S. dollars against the invoice of 395,000 yen, the exporter would take the forward cover for 30 days to reduce the exchange rate risk. The 30 rate is ...

Solution Summary

The solution discusses currency exchange for exporters between U.S. and Japan.

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