Looking for help in approaching the following problem:
You are a Japanese exporter. You have just made two shipments of your product; one to the U.S. (for which you will be paid in USD in 60 days) and one to China (for which you will be paid in CHY in 60 days). The USD floats against the JPY and the CHY is pegged to the USD.
Discuss briefly the currency risk(s) (and opportunities) that you are assuming by entering the above two export contracts
If I will be paid in foreign currency 60 days from now after making the shipments, I would be happy if USD appreciates against Japanese Yen and will be worried if the the USD depreciates. Same will be the case with CHY. If CHY depreciates I would be worried as I would receive less Japanese Yen on conversion. On the other hand I would be happy if CHY appreciates. Thus, there is a risk that I may receive an amount lower or higher than the amount I expect today due to changes in the currency exchange rate. This is called currency risk.
USD floats ...
Currency risks for Japanese Exporters are examined. The current risk and opportunities that are assuming by entering the above two export contracts are determined.