On June 1, Marano, Inc., sold product for $50,000 to be delivered immediately to a Japanese customer

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On June 1, Marano, Inc., sold product for $50,000 to be delivered immediately to a Japanese customer and to be paid in yen on August 1. Marano is worried that the exchange rate of dollars for yen could change significantly within two months. In hopes of avoiding a potential loss on exchange, the company has decided to purchase a forward contract.


Required:
1. On June 1, how much does Marano expect to receive from the Japanese customer in yen in payment for the sale?
2. If Marano purchases the forward contract, how many yen will it receive on August 1? What is that amount converted to dollars?
3. What is the premium Marano paid for the forward contract?
4. What if the exchange rate of yen for $1 on August 1 was $1 5 ¥108.0? How much would Marano have received from the Japanese customer in yen? What is that amount converted into dollars? Would Marano have experienced an exchange gain or loss on the transaction?

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Cost Management

ISBN: 978-0357141090

5th Edition

Authors: Don R Hansen, Maryanne M Mowen, Dan L Heitger

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