Problem: The exchange rate between the Japanese yen and the U.S. dollar is 105 yen = 1 U.S. dollar. A U.S. company agrees to purchase goods for 40 million yen, with payment due in 6 months.
Q1. How many U.S. dollars would the company need to purchase the goods and pay for them today?
Q2. Has the yen appreciated or depreciated against the dollar if the exchange rate is 100 yen to 1 U.S. dollar in 6 months? Why?
Q3. How many U.S. dollars will be needed to pay for the goods if the exchange rate is 110 yen to 1 U.S. dollar?
Q4. Does the Japanese exporter or the U.S. importer bear the risk if payment is due in yen? Why?
Q5. How can a company protect itself against exchange rate risk?