As such, you are assigned the duty of ensuring the availability of 100,000 yen for a payment scheduled for next month. Considering that your company possesses only US dollars, identify the spot and forward exchange rates. What are the factors that influence your decision to use the spot or forward exchange rate? Which one would you choose? How many dollars must you spend to acquire the amount of yen required?
To determine the spot and forward exchange rates, you would first need to check the current exchange rate between the US dollar and the Japanese yen. This information can typically be found on financial websites or by contacting your bank or currency exchange service.
Factors to consider when deciding between the spot and forward exchange rates include:
1. Timing: The spot exchange rate is the current rate for immediate transactions, while the forward exchange rate allows you to lock in a rate now for a future transaction. If you need the Japanese yen immediately, the spot rate would be more suitable. However, if you can wait and want to secure a rate in case it changes, you might choose the forward exchange rate.
2. Volatility: If the exchange rate is highly volatile, it may be more advantageous to choose the forward exchange rate to hedge against potential currency fluctuations. This way, you can fix the rate and know exactly how much you will need to spend in US dollars regardless of any future rate changes.
3. Interest rates: Interest rate differentials between countries can also impact the decision. If the interest rate in Japan is higher than in the US, you may want to consider the forward exchange rate to take advantage of potential interest rate differentials.
4. Transaction costs: Consider any fees or charges associated with the spot and forward exchange rates. It is important to compare the costs to ensure you are getting the best deal.
Ultimately, the choice between the spot and forward exchange rates will depend on your specific needs and circumstances.
To calculate how many US dollars you would need to spend to acquire 100,000 yen, you would multiply the amount of yen desired by the exchange rate. For example, if the exchange rate is 1 USD = 100 JPY, you would divide 100,000 yen by 100 to get 1,000 USD. Please note that exchange rates fluctuate and may vary at the time of your transaction.