A US Firm Owes ¥10 Million Three Months from Now

question 60

Essay

A U.S. firm owes ¥10 million three months from now. The spot exchange rate is ¥95/$ and the forward rate is ¥96/$. Is the yen selling at a forward premium or discount, related to the dollar? Does the firm face exchange risk? Should the firm buy yen now or later?

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Definitions:

School Funding

The financial resources provided for public schools, typically derived from taxes and allocated by governmental entities to support education.

Constituents

Members or components that form a part of a larger group, or individuals who are represented by elected officials.

Government Failure

Inefficiencies in resource allocation caused by problems in the operation of the public sector (government). Specific examples include the principal-agent problem, the special-interest effect, the collective-action problem, rent seeking, and political corruption.

Special-Interest Effect

The phenomenon where a small group gains substantially through an action or policy while the larger population bears the cost, often seen in political lobbying.