An American Company Imports Laptop Computers from Japan

question 28

Multiple Choice

An American company imports laptop computers from Japan.The company knows that after a shipment arrives,it must pay in yen to the Japanese supplier within 30 days.In a particular exchange,the American company must pay the Japanese supplier ×150,000 for each computer at the current dollar/yen spot exchange rate of $1 = ×110.The company intends to resell the computers the day they arrive for $1,600 each but it does not have the funds to pay the Japanese supplier until the computers have been sold.Which of the following will happen if the exchange rate after 30 days is $1 = ×90?

• A)The importer will earn a profit of approximately $236 per computer.
• B)The importer will earn a profit of approximately $67 per computer.
• C)The importer will incur a loss of approximately $236 per computer.
• D)The importer will incur a loss of approximately $67 per computer.
• E)The importer will incur a loss of approximately $90 per computer.

---

Definitions:

Cash Flows

Cash flows represent the net amount of cash and cash-equivalents being transferred into and out of a business, crucial for assessing its financial health, liquidity, and solvency.

Hedge

A strategy used in investing to minimize or offset the risk of adverse price movements in an asset.

Hedge Position

An investment made to reduce the risk of adverse price movements in an asset, often by taking an offsetting position in a related security.

Market Price

The market price is the current price at which an asset or service can be bought or sold.