Asked by Lydia Silva on Jul 04, 2024
Verified
TMK International just purchased equipment manufactured in Japan. The contract calls for the payment of 120 million Japanese yen, due in 90 days. Assume the present exchange rate is 109 yen per U.S. dollar, but rises to 112 yen per U.S. dollar in 90 days. What is the U.S. dollar gain or loss if no hedge is taken?
Hedge
An investment made to reduce the risk of adverse price movements in an asset, typically by taking an offsetting position in a related security.
Japanese Yen
The official currency of Japan, commonly used in international financial transactions.
U.S. Dollar
The official currency of the United States, widely used as a benchmark and reserve currency around the world.
- Evaluate the implications of fluctuations in exchange rates on cross-border financial activities.
Verified Answer
CC
Camryn CalderJul 10, 2024
Final Answer :
120,000,000/109 - 120,000,000/112 = 1,100,917 - 1,071,429 = $29,488
There is a cost reduction of $29,488, a gain for TMK.
There is a cost reduction of $29,488, a gain for TMK.
Learning Objectives
- Evaluate the implications of fluctuations in exchange rates on cross-border financial activities.