Yomance Co. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 5,000,000 yen and net outflows of 60,000 pounds. The present exchange rate of the Japanese yen is $.012 while the present exchange rate of the British pound is $1.50. Yomance Co. has not hedged its positions. The yen and pound movements against the dollar are highly and positively correlated. If the dollar strengthens, then Yomance Co. will:

Question

​Yomance Co. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 5,000,000 yen and net outflows of 60,000 pounds. The present exchange rate of the Japanese yen is $.012 while the present exchange rate of the British pound is $1.50. Yomance Co. has not hedged its positions. The yen and pound movements against the dollar are highly and positively correlated. If the dollar strengthens, then Yomance Co. will:

Quizplus · Accepted Answer

The dollar value of the yen inflows is $60,000 (5,000,000 * .012), while the dollar value of the pound outflows is $90,000 (60,000 * 1.50). If the dollar strengthens, the yen and pound will both weaken against the dollar, which means that the dollar value of the yen inflows will increase and the dollar value of the pound outflows will decrease. This will result in a net benefit to Yomance Co.

​Yomance Co

Yomance Co