The exchange rate between the Japanese yen and the U.S. dollar is 100.25 yen = 1U.S$. A U.S. company agrees to purchase goods for 50 million yen, with payment due in 6 months. Payment will be made in yen.
a. How many U.S. dollars would the company need to purchase the goods and pay for them today?
b. Has the yen appreciated or depreciated against the dollar if the exchange rate is 99.61 yen to 1$US in 6 months? Why?
c. How many U.S. dollars will be needed to pay for the goods if the exchange rate is 99.61 yen to 1$US?
d. Does the Japanese exporter or the U.S. importer bear the exchange rate risk ? Why?
e. Describe 2-3 ways in which the U.S. company can reduce exchange rate risk. How can a company protect itself against exchange rate risk?