Suppose a U

question 28

Multiple Choice

Suppose a U.S. firm buys $200,000 worth of television tubes from a Mexican manufacturer for deliin 60 days with payment to be made in 90 days (30 days after the goods are received) . The rising U.S. deficit has caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/dollar. The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation. Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S. dollar. How much in U.S. dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?

• A) $4,897.59
• B) $5,155.36
• C) $5,426.69
• D) $5,712.31
• E) $5,997.92

---

Definitions:

Keiretsu

A Japanese term that describes suppliers who become part of a company coalition.

Japanese Manufacturers

Companies based in Japan known for their emphasis on quality, innovation, and efficient production techniques, often within the automobile and electronics industries.

Local Optimization

A process of optimizing a specific area or department within an organization without necessarily considering its impact on the whole system.

Global Optimization

Global Optimization is the process of finding the best possible solution or achieving the highest efficiency across all possible solutions in a given mathematical model or situation.