Forward Rates. Using the same data in Problem 19.1:
(a) Calculate Johnson’s exchange gain or loss, if Johnson receives payment from the Japanese customer using the spot rate at the time of payment
(b) Calculate the amount that Johnson expects to receive on August 1 if Johnson’s policy is to hedge foreign currency transactions.
Problem 19.1
Spot Rates. On June 1, Johnson, Inc. received an order from a Japanese customer for 2,500,000 yen to be paid upon receipt of the goods, scheduled for August 1. The rates for $1 US are as follows:
Exchange Rates for $1 forYen
Spot rate, June 1 83
Forward rate, August 1 82
Spot rate, August 1 81
(a) Calculate what Johnson would receive from the Japanese customer in US dollars using the spot rate at the time of the order.
(b) Calculate what Johnson would receive from the Japanese customer in US dollars using the spot rate at the time of payment.