Exchange Rate Research
1.What are the factors that affect your decision of utilizing spot versus forward exchange rates? Which one would you choose? How many dollars do you have to spend to acquire the amount of yen required?
The factors that affect your decision of using spot verse forward depends on the timeline in which the monies are going to be utilized or when the transaction is going to happen. If you want to do quick business it appears the spot rate is the best but if your going to be doing long term say 30 to 90 days then the forward would be the best The spot rate is the exchange rate between two currencies for their immediate trade for delivery within two days. The forward rate is the cost today for a commitment to buy or sell an agreed amount of a currency at a fixed, future date. Based on the fact that this transaction has to take place within the next month I would choose the forward rate because it is good for 30 to 90 days. If 111 Yen equals 1 US dollar you need about 909 US dollars to come close to the amount needed.
2. As an entrepreneur, you are interested in expanding your business to either Poland or Portugal. As part of your initial analysis, you would like to know how much investment is needed to go to these markets. In order to get a rough number, you hire a consulting firm to do initial investment analysis. The consulting firm provides you a short report about how much money is needed for both countries. The numbers provided are: one million zloty (Poland’s currency) and 45 million escudo (Portugal’s currency). To make a clear comparison, you need to convert these currencies to U.S. dollars. Do the conversion
and suggest where to invest. One million zloty equals to US dollars; 45 million escudo equals to US dollars. Based on the conversion it would be wise for the entrepreneur to expand his business in Poland.