Question 13.4: Consider goods from United States to be sold to some Europea...
Consider goods from United States to be sold to some European company for 100,000,000 €. To eliminate the FX risk, the exporter can contract to deliver 100,000,000 € to his bank in 30 days in exchange for payment of $110,000,000. Such a forward contract will ensure that the US exporter can convert the money regardless of what may happen to the dollar-yen exchange rate over the next 30 days. However, if the Japanese buyer fails to pay on time, the US exporter will be anyway obligated to deliver the 100,000,000 € in 30 days.
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