Your Firm Has Just Tendered for a Contract in Japan

question 118

Essay

Your firm has just tendered for a contract in Japan.You won't know for 3 months whether you get the contract but if you do, you will receive a payment of 10 million yen a year from now on.You are worried that if the yen declines in value, the dollar value of this payment will be less than you expect and the project could even show a loss.Discuss the possible ways that you could protect the firm against a decline in the value of the yen.Illustrate the possible outcomes if you do get the contract and if you don't.

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Definitions:

Prisoners' Dilemma

A scenario in game theory where two individuals acting in their own best interest do not produce the optimal outcome for the group.

Cournot Output Choice

A model in economic theory where firms choose their output levels assuming competitors' outputs are fixed, aiming to maximize their own profit.

Pure Strategy Equilibrium

A concept in game theory where each player's chosen strategy provides the best outcome, given the strategies chosen by other players.

Nash Equilibrium

A situation in a strategic game where each player has chosen a strategy and no player can benefit by changing strategies while the other players keep theirs unchanged.