Suppose a U.S. company has a subsidiary in Japan that generates revenue in JPY. The company has
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Question:
Suppose a U.S. company has a subsidiary in Japan that generates revenue in JPY. The company has a forecasted revenue of JPY 100,000,000 in 6 months. The current spot exchange rate is USD/JPY 110.50, and the 6-month forward exchange rate is USD/JPY 110.70. The company wants to hedge its currency risk by entering into a forward contract with a notional amount of JPY 100,000,000 and a 6-month maturity. The company's cost of funds is 4% per annum in the U.S. and 1% per annum in Japan. Calculate the fair value of the forward contract and the net cash flow for the company in USD if it enters into the forward contract.
Related Book For
International Accounting
ISBN: 978-1260466539
5th edition
Authors: Timothy Doupnik, Mark Finn, Giorgio Gotti, Hector Perera
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