Foreign Exchange Market?

You manufacture wine goblets. In mid-June you receive an order for 100,000 goblets from Japan. Payment of 400,000 Yen is due in mid-December. You expect the Yen to rise from its present rate of $1= 130Yen to $1= 100Yen by December. You can borrow Yen at 6 percent a year. What should you do?

4 Answers

  • Yuri Fadeev / [email protected]
    1 month ago

    Spot rate today: $/¥ = 1/130 ≈ 0.00769

    Spot rate today: ¥/$ = 130

    Expected spot rate in december: $/¥ = 1/100 = 0.01

    Expected spot rate in december: ¥/$ = 100

    Yen will appreciate relatively to dollar for +30.0%

    Dollar will depreciate relatively to yen for -23.1%

    There are many options…. June-December is 6 months period.

    Case [1]: – do nothing (you will have simple FX premium due to currency appreciation)

    Convert your 400’000 yens to dollars in december and as a result at the end you will have ¥400’000/100 =$4’000 dollars

    Case[2] – FX market operations (forward)

    If today’s forward rate is less than 100 yens per dollar (without discounting) – then buy this future swap ¥→$ today. For instance if market agree to swap at rate 80 yens per dollar in 6 months at the end you will have ¥400’000/80 =$5’000

    Interest on yens is useless here, but if it’s possible to borrow dollars and convert it to yen till december – then depending on interest it may be profitable to convert $ to ¥ and get additional profits net interest from ¥ appreciation.

    But actually there are many other costs, exchange margins (0.5~1% in each direction), and of course you may be wrong with your expectation about future exchange rate.

  • Anonymous
    5 days ago

    Hi Fredoy, Foreign Exchange Market has no physical location like a stock exchange for example. It operates through the electronic network of banks. This allows Forex Market to operate on a 24 hours basis spanning from from one time zone to another across major financial centres like Sydney, Tokyo, Frankfurt, London, New York. The trading session will start in New Zealand, then Sydney, then Tokyo, Hong Kong, Singapore, Moscow, Frankfurt, London and ends in New York and LA. And trading forex is a skillset that anyone can pick up as a recession proof skillset. Therefore, regardless of the Forex Market’s up or down movement, one can profit from either long or short trades with no restriction. It is all about identifying an uptrend or downtrend and capturing the trend with quick profits and of course not forgetting two of the most important ingredients, i.e. your mindset and money management. Hope it helps. Best Regards Ah Kiat

  • ?
    4 days ago

    You Manufacture Wine Goblets

  • ?
    5 days ago

    It’s quite good

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Answers