Question: Suppose that the dollar trades at a forward discount relative
Suppose that the dollar trades at a forward discount relative to the yen. A U.S. firm must pay a Japanese supplier ¥10 million in three months. A manager in the U.S. firm reasons that because the dollar buys fewer yen on the forward market than it does on the spot market, the firm should not enter a forward hedge to eliminate its exchange rate exposure. Comment on this opinion.
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