Future Exchange Rate

Go to www.cmegroup.com to assess expected future exchange rate movements of Japan’s currency. Compare the futures price of the JPY/USD to the prevailing spot rate for this currency (you may use the current (spot) exchange rate that you cited in Homework for Chapter 4 if you like). If there is more than one contract (maturity) available for your currency, choose the one with maturity date of approximately one year from now.

Question 1 – Do the futures prices exhibit a premium or a discount (using the data you have collected)? Explain what this means for the expected appreciation or depreciation of the JPY compared to the USD.

Question 2 – Explain the impact this expected trend would have on the revenues paid to your firm by your Japanese customers (who will pay for your services in JPY rather than USD)?

Chapter 6:

Go to (https://www.boj.or.jp/en/index.htm/Links to an external site.) to learn about the Bank of Japan.

Question 3 – Examine the role that the Bank of Japan plays in managing the JPY currency market (how much does their government intervene?) Explain how and why this information is/might be important for the cash flows (A/R and A/P) and currency risk of your business.

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