A firm has just begun to do business in Japan and the financial manager anticipates approximately Yen 10,000,000 sales per month outstanding for approximately one month. He has not decided whether to hedge his receivables or not. To help decide, he has c

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A firm has just begun to do business in Japan and the financial manager anticipates approximately Yen 10,000,000 sales per month outstanding for approximately one month. He has not decided whether to hedge his receivables or not. To help decide, he has collected a small sample of prices reported in the table below. Interpret the table as follows: On January 15, the 30 day forward and spot rates of yen were $.008778/yen and $.008752/yen respectively. The actual spot rate on February 15 was $.009654/yen. Assuming sales of yen 10,000,000 each month, January 15 through May 15 collected one month later, what would the dollar receipts have been over this period with no hedge? What would they have been with a 100% forward edge. How might these results influence the decision to hedge? Show your work.

 


15-Jan

Forward Rate
0.008778

Spot Rate
0.008752

15-Feb

0.009681

0.009654

15-Mar

0.008941

0.008912

15-Apr

0.009223

0.009191

15-May

0.008843

0.008815

15-Jun

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0.009111

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