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?

1) 44,500
2) 45,000
3) 526 million
4) 47,500
5) 556 million

Answer 1

By hedging their currency exposure and selling 5,000,000 Japanese yen forward at a rate of .0095, the company will receive $47,500 in 60 days.

The question is asking how many dollars a company will receive if it decides to hedging its currency risk by selling Japanese yen in a forward market. Given the forward rate of .0095, to calculate the dollar amount received from selling 5,000,000 yen forward, you multiply the amount of yen by the forward rate.

The calculation would be: 5,000,000 yen * .0095 (forward rate) = $47,500.

Therefore, if the company sells the 5,000,000 yen forward at the rate of .0095, it will receive $47,500 in 60 days, regardless of the spot rate at that time.