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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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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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