Foreign Exchange Essay Example | Topics and Well Written Essays - 500 words

Foreign Exchange - Essay typesetters caseLooking at Table ll.1(Foreign Exchange Quotations, p.5) I see that the Monday 1-month forward for the Japanese yen, using the control Quote, is $0.009048 compared to the spot rate of .009035. The 3-month forward is .009074 and the 6-month forward is .009124. This means that the Japanese currency is expected to progressively consider during this period. The indirect quote column (Japanese currency calculated in US dollar terms) confirms the expected trend, viewing that gradually it will require more dollars to pay for a fixed amount of Japanese yen.I use the spot rate when I direct the currency immediately. I go to a lending institution or a bank to arrange for a forward exchange mystify when I need to protect the value of the US dollar against the possibility that the Japanese yen will pass over in value (appreciate), and it would require me to spend more money to purchase a product priced or denominated in that currency. In this parti cular case, if I have to purchase Y100,000 at present, at the rate of $0.009035 per yen, the amount I have to pay will be $903.50, which is engendered by multiplying these two numbers. Since the 1-month forward rate is $0.009048, the amount of our lose weight with the bank will be $904.80, which is higher by $1.30. A month from now, I will obtain from the bank Y100,000 at this price.I can either buy Y100,000 now at the spot grocery price at the rate of 1 Yen = $0.009035 and hold the currency until a month from now when I need to use it for payment, or I can arrange a forward contract which, at $0.009048, is $1.30 higher. The forward contract will protect me in case the Japanese yen appreciates. For example, if the Japanese yen, contrary to market expectations, rises to $0.009200 (or, conversely, $1 = 108.70, obtained by computing its reciprocal - i.e., 1/.009200), I will need to pay $920.00 a month from now or $16.50 higher - because I did not hedge my ready by using the forwa rd contract. This is also