CBC Ltd. will be exporting 380 million Yen worth of goods in four months. In order...

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CBC Ltd. will be exporting 380 million Yen worth of goods in four months. In order to make the sale, CBC agreed to be paid in Japanese Yen in four months time. The following exchange rate information is available: Spot price: 95.000 Yen = 1 USD Four- month forward rate: 95.128 Yen = 1 USD Required: a) Why might CBC wish to hedge their currency risk how can they do so using a forward contract (briefly explain your answer)? (2 Marks) b) If the spot exchange rate in four months is 1 USD = 95.365 Yen, calculate CBC's profit or loss from hedging. (4 Marks) CBC Ltd. will be exporting 380 million Yen worth of goods in four months. In order to make the sale, CBC agreed to be paid in Japanese Yen in four months time. The following exchange rate information is available: Spot price: 95.000 Yen = 1 USD Four- month forward rate: 95.128 Yen = 1 USD Required: a) Why might CBC wish to hedge their currency risk how can they do so using a forward contract (briefly explain your answer)? (2 Marks) b) If the spot exchange rate in four months is 1 USD = 95.365 Yen, calculate CBC's profit or loss from hedging. (4 Marks)

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a CBC might wish to hedge its currency risk because fluctuations in the exchange rate can affect the ... View the full answer