Question

.a) If the bid/ask quote for Japanese yen (JPY) and US dollars ($) in JPY/$ from a

   dealer is:

                                                      Bid                             Ask

                        JPY/$                  109.6802                     109.7102

    What is the bid/ask quote in $/JPY?

b). The Wolfpack Corporation is a U.S. exporter that invoices its exports to

the United Kingdom in British pounds. If it expects that the pound will appreciate against the dollar in the future, should it hedge its exports with a forward contract? Explain.

Answer 1

Solution a:

Bid rate of JPY/$ = 109.6802

Ask rate of $/JPY = 1/109.6802 = $0.0091174

Ask rate of JPY/$ = 109.7102

Bid rate of $/JPY = 1/ 109.7102 = $0.0091149

Therefore bid/ask quote in $/JPY = 0.0091149/ 0.0091174

Solution b :

As wolfpack corporation is US exporter and he exports in UK in british pound. If it is expected that pound will appreciate against dollar in future the he will receive more money in terms of dollar for his export. Therefore there is no need to hedge exports with a forward contract as he is already in a favorable situation.