# CMA Study Group

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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:
 Enter into the forward contract to purchase the Yen.

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 :
 \$2,601,318
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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