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Yen Exchange Rate

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As a financial analyst, I must advise multinational corporations (MNC) about its one-year investment plan next year in Japan. Because the investment is denominated in yen, I must forecast how the yen's value may change against the U.S. dollar over the 1-year period. For my assessment I must use the following forecasting techniques market-based forecasting. This paper must be 2 and ½ pages in length, written in 12-point, double-spaced font and works cited. I will use this as help and not represent it as my own work.

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The answer to this problem explains aspects of yen exchange rate in context of investment by multinationals. The references related to the answer are also included.

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In compliance with BrainMass rules this is not a hand in ready paper but is only guidance.

Market based forecasting means finding the future spot prices for the currency. Exchange rates are used in forecasting to compare current pricing with future pricing. Market based forecasting also means analyzing future spot rates on the basis of market determined exchange rate. In foreign exchange rate forecasting the future spot price are used. The current prices are compared with future pricing.

The current USD/JPY exchange rate is 123.48. This means that one has to pay 123.48 yen to purchase a dollar. The multinational company is making one year investment plan next year in Japan. Overall, there is a tendency for the Yen to decline against the dollar. In 2009 the USD/JPY was 93.60 and 2013 the USD/JPY was 97.56.

We now use market based forecasting to estimate the USD/JPY at the end of one year. The USD/JPY 1 year forward rate is bid -107.21 and ask is -104.91. Since, one pip in USD/JPY is 0.01(2) this means buyers have to pay (-107.21 X 0.01) = 1.07 yen more for a forward contract for dollars. This means they have to pay 124.55 yen for a spot ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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