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Using Foreign Exchange and Derivative Markets to Minimize Risk

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You are the Finance Manager of CompuTech, Inc, a US based company. CompuTech imports computer parts from Japan, assembles computers in the US and exports them to companies in Mexico. The parts are paid in Japanese Yen and the companies in Mexico pays in Mexican Pesos (meaning that you have payables in Yen and receivables in Pesos)

How can you use the foreign exchange and derivative markets to minimize the risk of exchange rate fluctuations? Give two specific examples, using available instruments.

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The solution uses foreign exchange and derivative markets to minimize risk.

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The foreign exchange and derivative markets can be used to significantly reduce the risk of exchange rate fluctuations. For ...

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