On January 1, 2022 Xerox Corporation signs a contract with Japanese government to supply office machinery. The contract stipulates that Xerox will receive 500,000 Yen on January 1, 2023. Xerox wishes to insure itself against exchange rate risk. The yield on a one year US Treasury bill on January 1, 2022 is 5.73% and the yield on a one year Japanese Treasury bond is 1.17%. The spot exchange rate on the same date is 110 Yen per US dollar. Suppose that Xerox uses the forward market to insure itself against exchange rate risk. Compute the amount of dollars that Xerox will receive for sure.
On January 1, 2022 Xerox Corporation signs a contract with Japanese government to supply office machinery. The contract stipulates that Xerox will receive 500,000 Yen on January 1, 2023. Xerox wishes to insure itself against exchange rate risk. The yield on a one year US Treasury bill on January 1, 2022 is 5.73% and the yield on a one year Japanese Treasury bond is 1.17%. The spot exchange rate on the same date is 110 Yen per US dollar. Suppose that Xerox uses the forward market to insure itself against exchange rate risk. Compute the amount of dollars that Xerox will receive for sure.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2022 Xerox Corporation signs a
contract with Japanese government to supply office
machinery. The contract stipulates that Xerox will
receive 500,000 Yen on January 1, 2023. Xerox
wishes to insure itself against exchange rate risk.
The yield on a one year US Treasury bill on January
1, 2022 is 5.73% and the yield on a one year
Japanese Treasury bond is 1.17%. The spot
exchange rate on the same date is 110 Yen per US
dollar. Suppose that Xerox uses the forward market
to insure itself against exchange rate risk. Compute
the amount of dollars that Xerox will receive for sure.
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