IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥210 million payable in three months. Currently, the spot USD/JPY rate is 108 and the three-month forward rate is 103. The three-month money market interest rate is 4.6 percent per annum in the U.S. and 2.4 percent per annum in Japan. The management of IBM decided to use the money market hedge to deal

Q: None

A: Calculation:The money market hedge involves borrowing in the currency of the payable obligation…

Q: The treasurer of a major U.S. firm has $31 million to invest for three months. The interest rate in…

A: Investment refers to the financial asset that is to be bought and sold at profit at some future…

Q: Beez Kneez co. needs to borrow $4 million for an upgrade to its headquarters and manufacturing…

A: The estimated loan rate is 7.22%.

Q: are the treasurer for ABC corporation.  You just received a bill from your Italian supplier of Genoa…

A: Exchange rates are very important in the international business it has large impact on the…

Q: A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds…

A: Here, Borrowing Amount is 10,000 pounds Amount paid back in year is 10,600 pounds Interest Rate of…

Q: 8. Fort Collins, Inc. has $1 million in cash available for 30 days. It can earn 1% on a 30-day…

A: Fort Collins should invest its cash in the country where , cash available in hand after 30 days will…

Q: Citigroup recently purchased $10,4 million worth of euro-denominated one-year CDs that pay 10…

A: Foreign exchange refers to the change of one currency into another currency on the basis of demand…

Q: The treasurer of a major U.S. firm has $43,129,609 to invest for three months. The annual interest…

A: Here, Investment amount is $43,129,609Investment Period is 3 Months U.S Interest Rate is 0.37% per…

Q: In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates:…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at…

A: When the bills are settled in foreign exchange currency, the company always has a risk of conversion…

Q: American Airlines is trying to decide how to go about hedging 70 million swiss francs in ticket…

A: Here, Hedging Amount in SFr    70,000,000.00Days of Sales Receivables180Spot Rate…

Q: Alpha Company, U.S.-based manufacturer of industrial equipment, just purchased a Korean company that…

A: i) Amount of dollars to be paid if covered under Forward Hedge: = Amount payable * Forward rate =…

Q: Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4651 per…

A: The exchange rate is the rate at which one currency is exchanged for another currency. It is the…

Q: 7 A company operating in Japan has today effected sales to an Indian company, the payment being due…

A: Foreign exchange risk refers to the potential loss that a company may face due to the fluctuations…

Q: The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in…

A: Investment refers to the financial asset that is to be bought and sold at profit at some future…

Q: Last year, your company sold electronic products to Brazil. You are expecting to receive Real…

A: Hedging is a technique in general used by commodity buyers/sellers to mitigate their risk in the…

Q: In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates…

A: According to interest rate parity theorem, interest rate differentials between two currencies…

Q: An American rm owes SFr 6, 000, 000.00 payable in one year. The current spot it$1.3750/SFr. A Swiss…

A: The objective of the question is to calculate the amount the American firm needs to borrow today to…

Q: Consider the currency risk faced by Walt Disney Company (DIS), which generates revenues from all…

A: Walt Disney can hedge the currency risk by entering into forward contracts to lock-in the exchange…

Q: n a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates:…

A: The question is based on the concept of net gain/loss due to investment in different currencies, due…

Q: The treasurer of a major U.S. firm has $22 million to invest for three months. The interest rate in…

A: Investment refers to the financial asset that is to be bought and sold at profit at some future…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: Amount receivable = €19 millioncurrent EUR/USD rate = 1.0651   One-year forward rate = 1.0898Annual…

Q: n a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates…

A: Interest rate parity theorem can be used to compute the expected exchange rates in the future.…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.