Question

Say that a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, the U.S. exporter agreed to be paid in yen, thus agreeing to take some exchange rate risk forthe transaction. The terms were net 6 months.

a. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would the U.S. exporter receive after it exchanged yen for U.S. dollars?

b. What is the difference (in dollars) between what the U.S. exporter could have received had they asked for payment immediately (before the devaluation of the yen) instead of six months later?

Show calculations please.

Answer 1

Part (a):

Price in Yen= 143.5 Million Yen

Exchange rate at the time of settlement (after devaluation of Yen)= 154.4 Yen per USD

Therefore, USD equivalent of price at the time of settlement= 143.5 Million/154.4 = 143,500,000/154.4

= $ 929,404.15

Part (b):

Exchange rate at the time of deal (before devaluation)= 140 Yen per Dollar

USD equivalent of price at the time of deal= 143.5 Million/140 = 143,500,000 /140

= $ 1,025,000

USD equivalent of price at the time of settlement (as in part a) = $ 929,404.15

Therefore, difference in Dollars exporter could have received had he asked for payment immediately= $1,025,000 - $ 929,404.15 = $ 95,595.85

The exporter could have gained $95,595.85 if he had asked for immediate payment.