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Question
A U.S. company that imports laptop computers from Japan knows that in 30 days it must pay in yen to a Japanese supplier when a shipment arrives. The company will pay the Japanese supplier 150,000 for each computer, and the current dollar/yen spot exchange rate is $1 = 110. The importer can sell the computers the day they arrive for $1,600 each. However, the importer will not have the funds to pay the Japanese supplier until the computers have been sold. The importer enters into a 30-day forward exchange transaction with a foreign exchange dealer at $1 = 105. Which of the following will happen if the exchange rate after 30 days is $1 = 90?
A. The importer will earn a profit of approximately $236 per computer.
B. The importer will earn a profit of approximately $171 per computer.
C. The importer will earn a profit of approximately $65 per computer.
D. The importer will incur a loss of approximately $67 per computer.
E. The importer will incur a loss of approximately $105 per computer.
Answer
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