Task: Exchange rates for several countries are shown below. The MLC Company which is based in the U.S. does business with companies in those countries.
The rates are shown as direct or indirect from the standpoint of the U.S. Company.
|
U.S. Dollar / Japanese yen (Indirect) |
British Pound / U.S. Dollar (Direct) |
U.S. Dollar / Mexican Peso (Indirect) |
| Spot |
115 |
1.81 |
11.1 |
| 30-day forward |
112 |
1.82 |
11.3 |
| 90-day forward |
110 |
1.84 |
11.4 |
| 180-day forward |
108 |
1.845 |
11.5 |
Q1. Is the U.S. dollar appreciating or depreciating against the Japanese yen? Explain.
Q2. Is the U.S. dollar appreciating or depreciating against the British pound? Why?
Q3. Is the U.S. dollar appreciating or depreciating against the Mexican peso? Why?
Q4. The U.S. company orders merchandise from companies in Japan, Britain, and Mexico, and pays in the foreign currency of each country at the end of 3 months.
From a foreign exchange standpoint, would it be to the advantage of the U.S. company to pay now instead of waiting 3 months? Why or why not?
Q5. Who bears the foreign exchange risk, the U.S. company or the foreign suppliers? Explain.