How many dollars does need to exchange today

Reference no: EM132197802

Question: Suppose that the U.S. company buys construction equipment from Japanese firm at a price of 290 million yen. The equipment is to be delivered to the United States and paid for in one year. The current exchange rate is yen 95 equals $ 1. The current interest rate on one-year U.S. Treasury bills is 8%, and on one-year Japanese government bonds the interest rate is 6%.

a. If the U.S. company exchanges dollars for yen today for one year, how many dollars does it need to exchange today in order to have 290 million yen in one year? Show all your work.

b. If the U.S. company enters a forward contract, agreeing to buy 290 million yen in one year at an exchange rate of yen 93 equals $1, how many dollars does it need today if it plans to invest the dollars at the U.S. interest rate of 8%? (round your answer to the nearest dollar).

Reference no: EM132197802

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