Purple Whale Foodstuffs Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for ¥675 million, but the Japanese firm has 60 days before it must make the payment to Purple Whale Foodstuffs Inc. The spot exchange rate is ¥132.78 per dollar, and the 60-day forward rate s ¥134.72 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium. f the customer pays Purple Whale Foodstuffs Inc. the ¥675 million today, how much will Purple Whale Foodstuffs Inc. receive in dollars? $5.84 million $5.33 million $4.83 million $5.08 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Purple Whale Foodstuffs Inc. would get more dollars if the Japanese firm paid off its account

Purple Whale Foodstuffs Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for ¥675 million, but the Japanese firm has 60 days before it must make the payment to Purple Whale Foodstuffs Inc. The spot exchange rate is ¥132.78 per dollar, and the 60-day forward rate s ¥134.72 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium. f the customer pays Purple Whale Foodstuffs Inc. the ¥675 million today, how much will Purple Whale Foodstuffs Inc. receive in dollars? $5.84 million $5.33 million $4.83 million $5.08 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Purple Whale Foodstuffs Inc. would get more dollars if the Japanese firm paid off its account

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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Spindler, Incorporated (a U.S.-based company), imports surfboards from a supplier in Brazil and sells them in the United States. Purchases are denominated in terms of the Brazilian real (BRL). During 2023, Spindler acquires 280 surfboards at a price of BRL 1,600 per surfboard, for a total of BRL 448,000. Spindler will pay for the surfboards when it sells them. Relevant exchange rates are as follows: Date September 1, 2023 December 1, 2023 December 31, 2023 March 1, 2024 U.S. Dollar per Brazilian Real (BRL) $ 0.210 0.200 0.220 0.205 Required: a. Assume that Spindler acquired the surfboards on September 1, 2023, and made payment on December 1, 2023. What is the effect of the exchange rate fluctuations on reported income in 2023? b. Assume that Spindler acquired the surfboards on December 1, 2023, and made payment on March 1, 2024. What is the effect of the exchange rate fluctuations on reported income in 2023 and 2024? c. Assume that Spindler acquired the surfboards on September 1, 2023,…
Brandt Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2020, with payment of 10 million South Korean won to be received on March 31, 2021. The following exchange rates apply: Date Spot Rate Forward Rate(to March 31, 2021) December 1, 2020 $ 0.0035 $ 0.0034 December 31, 2020 0.0033 0.0032 March 31, 2021 0.0038 N/A 1. Assuming that Brandt did not hedge his foreign exchange risk, how much foreign exchange gain or loss should it report on its 2020 income statement with regard to this transaction? a. 3000 gain b. 2000 loss c. 5000 gain d. 1000 loss 2. Assuming that Brandt entered into a forward contract to sell 10 million South Korean won on December 1, 2020, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2020 resulting from a fluctuation in the value of the won? Brandt amortizes forward points on a monthly basis using a straight-line method. Ignore…
Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$2.00 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.80 per F$. Suppose that Retrojo negotiates a forward contract with a bank, which commits it to purchasing Fijian dollars at F $2,000,000.00 at $0.80 per Fijian dollar in 90 days. Thus, Retrojo knows with certainty that it will need F$2,000,000.00×$0.80 per Fijian dollars =$1,600,000.00 for this exchange. Assume the Fijian dollar depreciates over this time period to $0.67 per Fijian dollar. If this were the case the outside of the contract only (U.S. dollars) would be needed to exchange for the required F$2,000,000.00.
JJ Fashion Wholesalers Ltd, an Indian clothing manufacturer, has a contract to purchase cotton from an Australian supplier to the value of AUD $700,000. How much will this order cost in Indian rupees (INR) if the bank has quoted JJ Fashion an AUD/INR exchange rate of 54.07 – 54.98?
Sing Tao wants to import goods for 2.54 million Australian dollar (A$) and pay to Australian exporter, WA Co., in one year. Sing Tao also wants to minimise its exchange rate risk for the payment of A$2.54 million by taking the forward market hedging strategy. Calculate the Chinese yuan (CNY) costs using the forward market hedging strategy based on the information in Table 1. (Enter the whole number without sign and symbol).
Blowfast Corporation, a U.S. exporter, sold wind turbines to a Mexican customer at a price of 5,000,000 U.S. dollars. In order to close the sale, however, Blowfast needed to agree to make its invoice payable in Mexican pesos, thus agreeing to take on the exchange rate risk for the transaction. The USDMXN exchange rate on the day of the sale was 20.0000, making the cost to the customer (per the invoice) 100,000,000 pesos. The terms of payment were: net, 6 months. If the value of the peso fell against the U.S. dollar such that one dollar would buy 22.0000 pesos by the date the invoice needed to be paid, what dollar amount would Blowfast receive assuming that it exchanged the recently received pesos for U.S. dollars in a foreign exchange transaction on the payment date? How much money did Blowfast gain or lose because of the change in the exchange rate?
Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$1.10 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.53 per F$. If Retrojo were to exchange U.S. dollars for the required F$1,100,000.00 Fijian dollars, it would need $ (U.S. dollars). If Retrojo waits 90 days to make this exchange (perhaps due to insufficient funds on hand), and the Fijian dollar appreciates to $0.64 during those 90- days, then Retrojo would need $ (U.S. dollars). Thus, if Retrojo believes that the Fijian dollar will appreciate, it can its exposure to such exchange rate risk by locking in the original exchange rate through the use of a forward contract.
Dune Ltd. is an Irish company which will pay CAN$609,000 to a supplier in Toronto in three months time. The spot rate of exchange today is CAN$1.45 = €1. In three-month forward contracts, the Canadian dollar is at a discount of CAN$0.05 against the €. Dune Ltd. has decided to hedge its foreign currency risk in relation to the CAN$609,000 payment using a three-month forward contract. How much will Dune Ltd. pay in € to purchase the CAN$609,000 under the forward contract? €406,000 €420,000 €435,000 None of the above
MrGyal buys and sells regularly with customers worldwide. Its home currency is the dollar. The company expects to receive Euros 1.6 million in 6 months’ time from a customer abroad.Exchange rates at the moment in the home country of MrGyal are as follows: Exchange rate Euro Per dollarSpot 0.9431-0.9456Six-month forward 0.9360- 0.9394Twelve-month forward 0.9368-0.9406 Required:a) Calculate the rate of forward premium of the euro on the 12-month forward exchange rate both for buying and selling rates. b) Assuming that a forward contract is the only hedging tool available in the home country of MrGyal, calculate the dollar receipts of the Euros1.6 million receivable from the foreign customer under a hedge condition. c) If the current spot rate at the end of 6 months is 1 dollar = Euros 0.9325-0.9400, comment on MrGyal hedging decision
Lost Pigeon Aviation, a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for ¥694 million, but the Japanese firm has 60 days before it must make the payment to Lost Pigeon Aviation The spot exchange rate is ¥132.78 per dollar, and the 60-day forward rate is ¥134.72 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium.
Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €19 million which is payable in one year. The current EUR/USD rate is 1.0651 and the one-year forward rate is 1.0898. The annual interest rate is 4.9% in the U.S. and 2.7% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. It is considering to hedge borrowing euros from Credit Lyonnaise against the euro receivable. How much will they receive in one year? (USD, no cents) The answer is 20,670,407 I cannot figure out how. Thanks!
On December 20, 2015, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign company at a price of 50,000 ostras. Payment received on January 10, 2016, Currency exchange rates for 1 ostra are as follows: December 20, 2015 $1.05, December 31, 2015 $1.02 and January 10, 2016 $0.98. How does the fluctuation in exchange rates affect Butanta's 2015 income statement? How does the fluctuation in exchange rates affect Butanta's 2016 income statement?

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