On July 15, 2016, you convert 600,000 U.S. dollars to Japanese yen in the spot foreign exchange market and purchase a six-month forward contract to convert yen into dollars. How much will you receive in U.S. dollars at the end of sik months? Use the data in Table 9 for this problem. (Round your answer to 2 decimal places. (e.g., 32.16) Amount that you will receive in US dollars at the end of six months
The Correct Answer and Explanation is :
To solve this problem, I’ll need the specific exchange rates from “Table 9,” which you mentioned. These rates would include the spot exchange rate for USD/JPY on July 15, 2016, and the six-month forward rate for USD/JPY on the same date. With these rates, I could calculate how many yen you receive initially and how much in USD you would get after six months by converting back using the forward rate.
Since you didn’t provide the actual exchange rates, I’ll outline the steps you would take to solve this problem if you have the necessary data:
- Convert USD to JPY Using the Spot Rate:
- If the spot rate is S USD/JPY (the number of Japanese yen you get for one US dollar), then for $600,000, you would receive ( 600,000 \times S ) yen.
- Use the Forward Rate for Conversion Back to USD:
- Suppose the six-month forward rate is F USD/JPY. To find out how much USD you would receive at the end of six months when you convert the yen back to dollars, you would divide the yen amount by the forward rate: ( \frac{600,000 \times S}{F} ).
- Calculate the Final Amount:
- This step involves simple arithmetic based on the rates given.
- Example Calculation (Hypothetical Rates):
- Let’s say the spot rate on July 15, 2016, was 100 JPY per USD, and the six-month forward rate was 105 JPY per USD.
- Initial conversion: $600,000 * 100 JPY/USD = 60,000,000 JPY
- After six months (using the forward rate): ( \frac{60,000,000 \text{ JPY}}{105 \text{ JPY/USD}} \approx \$571,428.57 )
This example shows how you would end up receiving approximately $571,428.57 after six months, assuming the yen depreciates against the dollar as indicated by the forward rate being higher than the spot rate.
To provide an exact answer, please provide the spot and forward exchange rates from Table 9, or let me know if you need any other information!