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XYZ (American firm) has a plant in Japan. XYZ anticipates that they will need 25,000,0000 yen to meet next month's payroll. XYZ is considering entering into a forward contract to mitigate exchange rate risk. XYZ finds a bank that is willing to enter into a one month forward contract on 25 million yen at a forward rate of $.005/yen. Currently, the spot rate is $.004/yen. Assume that the spot rate is $.0045/yen when the forward contract expires. What will XYZ do to mitigate its exchange rate risk?

		Wait one month and buy 25 million yen to meet their payroll obligations
		Wait one month and sell 25 million yen to meet their payroll obligations
		Buy a forward contract on 25 million yen
		Sell a forward contract on 25 million yen Find XYZ's profit/loss (in USD) from their forward contract. 25000 -25000 12500 -12500 A British firm is set to receive 15,000,000 pesos from its overseas operations in 12 months. The company decides to enter into a 12 month forward contract for 15 million pesos to mitigate its price risk. The forward rate is 16 pesos/pound. Find the British firm's profit/loss (in terms of pounds) on the forward contract if the spot rate is 20 pesos/pound at expiration. -187,500 187,500 16,000,000 -16,000,000

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