A Japanese Exporter Has a €1,000,000 Receivable Due in One

question 44

Multiple Choice

A Japanese exporter has a €1,000,000 receivable due in one year.Spot and forward exchange rate data is given: $\begin{array}{rlr}Spot exchange rates&1 \text {-year Forward Rates } & \text { Contracts1ze } \\ \$ 1.20=€ 1.00&\$ 1.25=€ 1.0 C & € 62,500\\ \$ 1.00=€ 1.00&\$ 1.00=¥ 12 C & ¥ 12,500,000\end{array}$ The one-year risk free rates are i_$ = 4.03%; i_€ = 6.05%; and i_¥ = 1%.Detail a strategy using forward contracts

• A)Borrow €970,873.79 today; in one year you owe €1m,which will be financed with the receivable.Convert €970,873.79 to dollars at spot,receive $1,165,048.54.Convert dollars to yen at spot,receive ¥116,504,854.
• B)Sell €1m forward using 16 contracts at the forward rate of $1.20 per €1.Buy ¥150,000,000 forward using 11.52 contracts,at the forward rate of $1.00 = ¥120.
• C)Sell €1m forward using 16 contracts at the forward rate of $1.25 per €1.Buy ¥150,000,000 forward using 12 contracts,at the forward rate of $1.00 = ¥120.
• D)none of the options

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Antioxidants

Substances that can prevent or slow damage to cells caused by free radicals, often found in food.

Null Hypotheses

Hypotheses that propose no statistical significance exists in a set of given observations, suggesting no effect or difference.

Population Variances

A measure of the variance within the entire population, representing how data points in a population are spread out.

Confidence Interval Estimate

A span of numerical outcomes extracted from sampled observations that is expected to hold the accurate population statistic within a given confidence degree.