Question: Spot Foreign Exchange 99.50 – 100.50 Y/$ 1 Year USD Interest Rate Spread (for Top Credits) 2.1 % – 1.9% 1 Year YEN Interest Rate Spread (for Top Credits) 1.1 % – 0.9 % Your Firm Is Not A Bank And Must Pay Spreads In The Money Markets. You Have A Trade Receivable (invoice) From Your Client/customer (a AAA Credit) Which Is Due In A Year In Yen For 1MY. …

Spot Foreign Exchange 99.50 – 100.50 Y/$

1 year USD interest rate spread (for top credits) 2.1 % -1.9%

1 year YEN interest rate spread (for top credits) 1.1 % – 0.9%

Your firm is not a bank and must pay spreads in the moneymarkets. You have a trade receivable (invoice) from yourclient/customer (a AAA credit) which is due in a year in Yen for1MY. Your home currency is USD and your firm is also a top (AAA)credit.

Instead of paying 1MYen in a year, your client/customer wants toamend this invoice and opens negotiations offering to change thetiming and/or the currency of it along with its face value. Theypropose three possible variations, considered each separately onits own merits.

a) To accept the first proposed change, in a negotiation whatwould be your breakeven or minimum sum to receive immediate Yeninstead of Yen in a year (2 decimal places)?

b) To accept a different proposed change, in a separatenegotiation what would be your breakeven or minimum sum to receiveimmediate Dollars instead of Yen in a year (2 decimal places)?

c) To accept a third alternate change, in this negotiation whatis your breakeven or minimum sum for receiving Dollars in a yearinstead of Yen in a year (2 decimal places)?

d) Assuming that the client’s business activity also does notinclude making markets in money (i.e. they face spread costs) inthis last negotiation (for dollars in a year) what is the maximumamount of dollars in a year that the client would be prepared topay (2 decimal places)?