7 A company operating in Japan has today effected sales to an Indian company, the payment being due 3 months from the date of invoice. The invoice amount is 108 lakhs yen. At today's spot rate, it is equivalent to Rs. 30 lakhs. It is anticipated that the exchange rate will decline by 10% over the 3 months period and in order to protect the yen payments, the importer proposes to take appropriate action in the foreign exchange market. The 3 months forward rate is presently quoted as 3.3 yen per rupee. You are required to calculate the expected loss and to show how it can e hedged by a forward contract.
7 A company operating in Japan has today effected sales to an Indian company, the payment being due 3 months from the date of invoice. The invoice amount is 108 lakhs yen. At today's spot rate, it is equivalent to Rs. 30 lakhs. It is anticipated that the exchange rate will decline by 10% over the 3 months period and in order to protect the yen payments, the importer proposes to take appropriate action in the foreign exchange market. The 3 months forward rate is presently quoted as 3.3 yen per rupee. You are required to calculate the expected loss and to show how it can e hedged by a forward contract.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A company operating in Japan has today effected sales to an Indian company,
the payment being due 3 months from the date of invoice. The invoice amount
is 108 lakhs yen. At today's spot rate, it is equivalent to Rs. 30 lakhs. It is
anticipated that the exchange rate will decline by 10% over the 3 months period
and in order to protect the yen payments, the importer proposes to take
appropriate action in the foreign exchange market. The 3 months forward rate
is presently quoted as 3.3 yen per rupee. You are required to calculate the
expected loss and to show how it can e hedged by a forward contract.
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