Question 4 The exchange rate between the Japanese yen and the US dollar is 10025 yen = 1US$ A US company agrees to purchase goods for 50 million yen, with payment due in 6 months Payment will be made...

Question 4
The exchange rate between the Japanese yen and the US dollar
is 10025 yen = 1US$ A US company agrees to purchase goods for 50 million yen, with payment due in 6 months Payment will be made in yen

a How many US 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 9961 yen to 1$US in 6 months? Why?

c How many US dollars will be needed to pay for the goods if the exchange rate is 9961 yen to 1$US?

d Does the Japanese exporter or the US importer bear the exchange rate risk ? Why?

e Describe 2-3 ways in which the US company can reduce exchange rate risk

How can a company protect itself against exchange rate risk?