1) Suppose a German store is importing sweaters from a Japanese exporter. The German firm is contracted to make a 200,000 yen payment in exchange for the sweaters (delivery and payment in 30 days). Suppose the current spot rate is .006 euro per yen. a. If the firm expects the spot rate to stay the same, how much does the German fırm expect to pay in euros? b. Suppose in 30 days the spot rate actually turns out to be .007 euro per yen. Now how many euros will the German firm pay? Suppose the German fırm had taken out a 30 day forward contract to buy the 200,000 yen at a rate of 160 yen per euro. If the spot rate turns out to be .007 euro per yen in 30 days: c, How much will the German pay in euros? d. Will the German firm be better-off or worse-off from having signed the forward contract (Better-off/Worse-off)? 2) You (a U.S. citizen) have decided to speculate by selling euros in the 3-month forward market (note: to sell them you will have to purchase them in 3-months on the spot-market). The current spot rate is 2.5 euro/$. You agree to sell 400 euro on a 3-month forward contract at 2.4 euro/$. After 3 months, the spot rate turns out to be 2.8 euro/$. a) Do you gain or lose money? b) How many $'s do you gain of lose?

1) Suppose a German store is importing sweaters from a Japanese exporter. The German firm is contracted to make a 200,000 yen payment in exchange for the sweaters (delivery and payment in 30 days). Suppose the current spot rate is .006 euro per yen. a. If the firm expects the spot rate to stay the same, how much does the German fırm expect to pay in euros? b. Suppose in 30 days the spot rate actually turns out to be .007 euro per yen. Now how many euros will the German firm pay? Suppose the German fırm had taken out a 30 day forward contract to buy the 200,000 yen at a rate of 160 yen per euro. If the spot rate turns out to be .007 euro per yen in 30 days: c, How much will the German pay in euros? d. Will the German firm be better-off or worse-off from having signed the forward contract (Better-off/Worse-off)? 2) You (a U.S. citizen) have decided to speculate by selling euros in the 3-month forward market (note: to sell them you will have to purchase them in 3-months on the spot-market). The current spot rate is 2.5 euro/$. You agree to sell 400 euro on a 3-month forward contract at 2.4 euro/$. After 3 months, the spot rate turns out to be 2.8 euro/$. a) Do you gain or lose money? b) How many $'s do you gain of lose?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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