Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$1.90 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.56 per F$. If Retrojo were to exchange U.S. dollars for the required F$1,900,000.00 Fijian dollars, it would need $ (U.S. dollars). If Retrojo waits 90 days to make this exchange (perhaps due to insufficient funds on hand), and the Fijian dollar appreciates to $0.70 during those 90- days, then Retrojo would need (U.S. dollars). Thus, if Retrojo believes that the Fijian dollar will appreciate, it can its exposure to such exchange rate risk by locking in the original exchange rate through the use of a forward contract. T reduce increase RE: 0/2

Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$1.90 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.56 per F$. If Retrojo were to exchange U.S. dollars for the required F$1,900,000.00 Fijian dollars, it would need $ (U.S. dollars). If Retrojo waits 90 days to make this exchange (perhaps due to insufficient funds on hand), and the Fijian dollar appreciates to $0.70 during those 90- days, then Retrojo would need (U.S. dollars). Thus, if Retrojo believes that the Fijian dollar will appreciate, it can its exposure to such exchange rate risk by locking in the original exchange rate through the use of a forward contract. T reduce increase RE: 0/2

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 1ST

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