Exchange rates, risk
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Exchange rates for several countries are shown below. The MLC Company which is based in the U.S. does business with companies in those countries.
The rates are shown as direct or indirect from the standpoint of the U.S. Company.
U.S. Dollar / Japanese yen (Indirect) British Pound / U.S. Dollar (Direct) U.S. Dollar / Mexican Peso (Indirect)
Spot 115 1.81 11.1
30-day forward 112 1.82 11.3
90-day forward 110 1.84 11.4
180-day forward 108 1.845 11.5
a. Is the U.S. dollar appreciating or depreciating against the Japanese yen? Explain.
B. Is the U.S. dollar appreciating or depreciating against the British pound? Why?
c. B. Is the U.S. dollar appreciating or depreciating against the Mexican peso? Why?
d. The U.S. company orders merchandise from companies in Japan, Britain, and Mexico, and pays in the foreign currency of each country at the end of 3 months. From a foreign exchange standpoint, would it be to the advantage of the U.S. company to pay now instead of waiting 3 months? Why or why not?
e. Who bears the foreign exchange risk, the U.S. company or the foreign suppliers? Explain.
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Exchange rates for several countries are shown below. The MLC Company which is based in the U.S. does business with companies in those countries.
The rates are shown as direct or indirect from the standpoint of the U.S. Company.
U.S. Dollar / Japanese yen (Indirect) British Pound / U.S. Dollar (Direct) U.S. Dollar / Mexican Peso (Indirect)
Spot 115 1.81 11.1
30-day forward 112 1.82 11.3
90-day forward 110 1.84 11.4
180-day forward 108 1.845 11.5
a. Is the U.S. dollar appreciating or depreciating against the Japanese yen? Explain.
The US dollar is depreciating against the Japanese yen
1 dollar can buy
115 Yen in the Spot market (now)
112 Yen after 30 days
110 Yen after 90 days
108 Yen after 180 days
Thus the purchasing power of US dollar is decreasing; it can buy lesser yen in future-therefore it is depreciating with ...
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