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

question 30

Multiple Choice

A Japanese EXPORTER has a €1,000,000 receivable due in one year.Spot and forward exchange rate data given in the table: The one-year risk free rates are i_$ = 4.03%; i_€ = 6.05%; and i_¥ = 1%.Detail a strategy using forward contracts that will hedge exchange rate risk.

• 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 above

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Definitions:

Property Qualification

Historical voting or office-holding requirement that mandated individuals own a certain amount of property or land to participate in the political process.

Suffrage

The right to vote in political elections, often highlighted in historical contexts around movements to extend this right to various groups.

Linked With Freedom

Suggestively associated with the concept or state of being free, possibly pertaining to movements, ideologies, or historical events advocating for liberty.

Revolution

A fundamental and relatively quick change in political power or organizational structures that takes place when the population revolts against existing authorities.