Problem: The exchange rate between the Japanese yen and the U.S. dollar is 110 yen = 1U.S$. Acme Company has decided to purchase goods for 45 million yen, with payment due in 8 months.
1. How many U.S. dollars would the company need to purchase the merchandise and pay for them today?
2. Has the yen appreciated or depreciated against the dollar If the exchange rate is 105 yen to 1$US in 8 months? Why?
3. How many U.S. dollars will be needed to pay for the goods if the exchange rate is 125yen to 1$US?
4. Which importer will endure the risk if payment is due in yen? The Japanese exporter or the U.S. importer? Please back up your reasoning.
5. What can a company do in order to protect itself against exchange rate risk?