Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward?

Question

Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward?​

Quizplus · Accepted Answer

To determine how many dollars you will receive for the 5,000,000 yen 60 days from now if you sell yen forward, you first need to calculate the current market value of 5,000,000 yen in dollars using the spot rate.

5,000,000 yen x $.0089 = $44,500

Next, you need to calculate the forward rate for the 5,000,000 yen in 60 days.

5,000,000 yen x $.0090 = $45,000

Since the forward rate is higher than the expected spot rate, it's advantageous to sell yen forward.

Finally, you need to calculate the dollar amount received for the 5,000,000 yen by multiplying the amount of yen by the forward rate.

5,000,000 yen x $.0095 = $47,500

Therefore, the answer is D: $47,500.

Your Company Expects to Receive 5,000,000 Japanese Yen 60 Days