International Business - Foreign Exchange Market paper

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Write a 5-page paper addressing the questions and instructions for both Exercise 1 on the spot and forward markets for the Japanese Yen and Exercise 2 on currency exchange rates.

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http://moodle.averett.edu/mod/assign/view.php?id=5...


COVER PAGE

Week-3

Foreign Exchange Market

BSA480-B733-SU18-International Business

Tanesha Lockett

Professor, Lyle E. Cady, Jr.

Date




WEEK-3 International Business Foreign Exchange Market Review the information in Exercises 1 and 2 for the Research Task—The Foreign Exchange Market. Exercise 1 One of your company’s essential suppliers is located in Japan. Your company needs to make a 1 million Japanese yen payment in six months. Considering that your company primarily operates in U.S. dollars, you are assigned the task of deciding on a strategy to minimize your transaction exposure. Identify the spot and forward exchange rates between the two currencies. What factors influence your decision to use each? Which one would you choose? How many dollars must you spend to acquire the amount of yen required? The FXStreet.com website specializes in analyzing the foreign exchange market, including news and analysis in addition to live exchange rates. Both spot rates and forward rates can be found under the “Rates & Charts” section. Search phrase: forward exchange rates Resource Name: FXStreet.com Website: http://www.fxstreet.com/ globalEDGE Category: Finance Exercise 2 Sometimes, analysts use the price of specific products in different locations to compare currency valuation and purchasing power. For example, the Big Mac Index compares the purchasing-power parity of many countries based on the price of a Big Mac. Locate the latest edition of this index that is accessible. Identify the five countries (and their currencies) with the lowest purchasing-power parity according to this classification. Which currencies, if any, are overvalued? The Big Mac Index was invented by The Economist in 1986 and has been updated annually since then to provide a light-hearted demonstration of the theory of purchasing-power-parity by comparing the price of a Big Mac in various countries around the world. Search phrase: Big Mac Index Resource Name: Economist: The Big Mac Index Website: http://www.economist.com/content/big-mac-index globalEDGE Category: Finance Write a 5-page paper addressing the questions and instructions for both Exercise 1 on the spot and forward markets for the Japanese Yen and Exercise 2 on currency exchange rates. Format your paper consistent with APA guidelines.
WEEK-3 International Business Foreign Exchange Market Review the information in Exercises 1 and 2 for the Research Task—The Foreign Exchange Market. Exercise 1 One of your company’s essential suppliers is located in Japan. Your company needs to make a 1 million Japanese yen payment in six months. Considering that your company primarily operates in U.S. dollars, you are assigned the task of deciding on a strategy to minimize your transaction exposure. Identify the spot and forward exchange rates between the two currencies. What factors influence your decision to use each? Which one would you choose? How many dollars must you spend to acquire the amount of yen required? The FXStreet.com website specializes in analyzing the foreign exchange market, including news and analysis in addition to live exchange rates. Both spot rates and forward rates can be found under the “Rates & Charts” section. Search phrase: forward exchange rates Resource Name: FXStreet.com Website: http://www.fxstreet.com/ globalEDGE Category: Finance Exercise 2 Sometimes, analysts use the price of specific products in different locations to compare currency valuation and purchasing power. For example, the Big Mac Index compares the purchasing-power parity of many countries based on the price of a Big Mac. Locate the latest edition of this index that is accessible. Identify the five countries (and their currencies) with the lowest purchasing-power parity according to this classification. Which currencies, if any, are overvalued? The Big Mac Index was invented by The Economist in 1986 and has been updated annually since then to provide a light-hearted demonstration of the theory of purchasing-power-parity by comparing the price of a Big Mac in various countries around the world. Search phrase: Big Mac Index Resource Name: Economist: The Big Mac Index Website: http://www.economist.com/content/big-mac-index globalEDGE Category: Finance Write a 5-page paper addressing the questions and instructions for both Exercise 1 on the spot and forward markets for the Japanese Yen and Exercise 2 on currency exchange rates. Format your paper consistent with APA guidelines.

Tutor Answer

NicholasI
School: Carnegie Mellon University

Hi, kindly find attached

Running Head: INTERNATIONAL BUSINESS - FOREIGN EXCHANGE MARKET

Week-3

Foreign Exchange Market

BSA480-B733-SU18-International Business

Tanesha Lockett

Professor, Lyle E. Cady, Jr.

Date:

1

INTERNATIONAL BUSINESS - FOREIGN EXCHANGE MARKET

2

Requirement #1: Forward Exchange Rates

It will require a strategy such that it will help the business not to involve in the risk of
falling into paying off more than budgeted for. It is the wish and policy of every business to
spend less so as to maximize their profits. In this case, we will be required to make a forward
exchange rate arrangements with a financial organization such that we are given an exchange
rate which will remain for the six months. Considering that our business uses the US dollars to
make payment for supplies and the company we are dealing with is based in Japan and therefore
they prefer the Japanese Yen we will be needed to consider a better exchange rate that will last
for six months and that will see us spend fewer dollars. As per the policy of the company we are
going to make this payment in US dollars which will the exchanged by the bank to the Japanese
Yen.

In choosing the currency that we will use it will also take some factors into consideration
which will involve, timing as one of the factors. It will be good for us to consider the timing of
sending the international payments in a particular currency. It will work well for us and as well
as the supplier if we reach out to the institutions that will transfer the money for us and get to
know how fast the local currency can reach the supplier versus the US dollars.

Another factor to consider will be t...

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