Suppose that J.B.Campbell & Company operates in the United States and sells 10 coffee tables to a Japanese company.J.B.Campbell & Company delivers the tables now and will receive ¥187,500 in 6 months.If the current spot rate is ¥122/$ and if the exchange rate in 6 months is ¥127/$,how much will J.B.Campbell & Company have gained / lost from the movements in exchange rates if it does not hedge this transaction.

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Quizplus · Accepted Answer

The answer is that they will lose $60.50 due to exchange rate fluctuations.To calculate this just convert the ¥187,500 into U.S.dollars at the current spot rate and convert the ¥187,500 at the spot rate in 6 months.Today the ¥187,500 is worth $1,536.88 and in 6 months it is worth only $1,476.38.Thus J.B.Campbell & Company will lose $60.50.

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