Yomance Co. is a U.S. company that has exposure to Japanese yen
and British pounds. It...
Yomance Co. is a U.S. company that has exposure to Japanese yen
and British pounds. It has net inflows of 4,000,000 yen and net
outflows of 50,000 pounds. The present exchange rate of the
Japanese yen is $.010 while the present exchange rate of the
British pound is $1.25. Yomance Co. has not hedged its positions.
The yen and pound movements against the dollar are highly and
positively correlated. If the U.S. dollar strengthens by say 5% how
will this affect Yomance Co. overall cashflow? Will they be
adversely affected or will they benefit? Explain with
calculations.
Solutions
Expert Solution
Yomance Co. Will be benefite if US Dollar
is strengthen by 5% as there will be overall reduction in cash
outflw by $1,125
A U.S. company needs to pay Japanese Yen for the equipment
purchase in the next six months and would like to hedge its foreign
exchange rate risk. Please construct a range forward strategy using
foreign currency options.
How should this U.S. company hedge by using the standard
forward contract? How would you compare the hedge using the range
forward strategy with the hedge using the standard forward
contracts?
Suppose £ represents British pound and ¥ represents Japanese
yen. If E¥/£ = 150 in Tokyo while E¥/£ = 155 in London. How would
you do arbitrage to make a profit?
What is the meaning of covered interest parity? How do you use
it to determine the forward exchange rate?
What is the meaning of uncovered interest parity? How do you use
it to determine the spot exchange rate?
Choose one major global currency among the euro, the Japanese
yen, the British pound, the Chinese yuan, the Canadian dollar, the
Australian dollar, the Mexican peso and the Swiss franc and explain
the economic factors that have affected its price in US dollars
during the past 3 months.
Suppose that the Japanese yen depreciates relative to the U.S.
dollar. How does this affect the competitiveness of both Ford and
Honda in both the U.S. and Japanese markets? Create a numeric
example to show how Honda could reduce the dollar price of cars
sold in the U.S. and still earn more yen per car compared with the
stronger yen and higher dollar price
Suppose the exchange rate between the U.S. dollar and the
Japanese yen is initially ¥90/$. According to purchasing-power
parity, if the price of traded goods rises by 5 percent in the
United States and by 15 percent in Japan, what will be the expected
exchange rate?
¥99/$
¥72/$
¥81/$
¥90/$
¥108/$
If Mexico dollarizes its currency, it essentially
Ensures that Mexico's business cycle is identical to that of the
U.S.
Allows the U.S. Federal Reserve Bank to be Mexico's lender...
As at 1st January, 2017, the spot exchange rate between the U.S.
dollar and Japanese Yen was trading at $1.00 equivalent to ¥100.
The local bank offered the Company to exchange $1.00 for ¥102 on
31st December, 2017. The Interest rates on one year government
bonds were 6% in U.S. and 10% in Japan. The company can borrow and
lend at the risk-free rate on government bonds. As an Investment
Advisor you have been approached for advice by the CEO...
1. When the exchange rate between the U.S. dollar and Japanese
yen changes from $1 = 100 yen to $1 = 90 yen: All Japanese
producers and consumers will lose. U.S. consumers of Japanese TV
sets will benefit. U.S. auto producers and autoworkers will lose.
Japanese tourists to the U.S. will benefit.
2.
The Social Security Trust Fund (OASI):
Is currently depleted.
Is currently paying out less than it is receiving in payroll
taxes.
Is required by law to be...
1. Depict Two currency markets graphs: the Japanese Yen
and the U.S. Dollar, setting up the two markets in initial
equilibrium. Next to the supply curve and the demand curve state
who is on the supply curve in each market and who is on the demand
curve in each market.
2. Assume there is an increased preference among U.S.
consumers for Japanese electronic goods because of a perceived
superior quality. Copy number 1 graphs and reflecting this change.
MAKE THEM...
Suppose that you are a speculator and that you noticed that the
Japanese yen (F has depreciated substantially against the U.S.
dollar (USD) over the several months. The current spot rate S0.0090
(i.e. 0.0090 USD per Y). Several major financial press articles
suggest that the yen will continue to substantially depreciate over
the next several months. However, you expect the value of the yen
to remain very stable over the next several months (i.e., you
expect very little to no...
Momomo is a
construction company in Japan. Momomo is concerned on the
depreciation of Japanese Yen in the future. The company expected to
pay its supplier EUR 950,000 in Germany in three months. At the
same time, Momomo is expected to receive a payment of USD1,500,000
from its customer, three months from now. The cost of capital for
Momomo is 7.5%. The current spot rate is at JPY 109/USD and
JPY120/EUR
The following information was given by
Momomo’s bank.
Exercise...