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can anyone help me with these questions?

  • 1.  can anyone help me with these questions?

    Posted 2 days ago
    Baljit Inc. purchased machinery from a Japanese firm and will have to pay ¥278,450,000 in 90 days. Baljit has three choices: (1) wait 90 days and purchase the Yen on the spot market on settlement date, (2) enter into a forward contract with a rate of ¥105.46/$ to buy the required Yen on the settlement date, or (3) purchase the Yen today on the spot market at a rate of ¥102.50/$. The risk-free rate is 6% in both Japan and the US. Assuming Baljit is risk averse, what is its best option?
    ANS:


    Baljit Inc. purchased machinery from a Japanese firm and will have to pay ¥278,450,000 in 90 days. Baljit has three choices: (1) wait 90 days and purchase the Yen on the spot market on settlement date, (2) enter into a forward contract with a rate of ¥105.46/$ to buy the required Yen on the settlement date, or (3) purchase the Yen today on the spot market at a rate of ¥102.50/$. The risk-free rate is 6% in both Japan and the US. What is the cost today to Baljit of the forward contract choice?
    ANS :
    cost of the forward contract is ¥278,450,000 ÷ ¥105.46/$ = $2,640,338 ÷ (1 + .06 × 90 ÷ 360) = $2,601,318.

    Baljit Inc. purchased machinery from a Japanese firm and will have to pay ¥278,450,000 in 90 days. Baljit has three choices: (1) wait 90 days and purchase the Yen on the spot market on settlement date, (2) enter into a forward contract with a rate of ¥105.46/$ to buy the required Yen on the settlement date, or (3) purchase the Yen today on the spot market at a rate of ¥102.50/$. The risk-free rate is 6% in both Japan and the US. What is the cost today if Baljit purchases the Yen today on the spot market?
    ANS : cost of purchasing the Yen today is ¥278,450,000 ÷ (1 + .06 × 90 ÷ 360) = ¥274,334,975 ÷ ¥102.50/$ = $2,676,439.


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    Sreedevi
    India
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