ABSTRACT
In today's global marketplace, companies are doing more and more business with foreign corporations. These transactions present a factor known as foreign exchange risk. Imagine that your company sells a large piece of manufacturing equipment to a Japanese firm and the foreign firm will pay for the equipment in thirty days. The deal was closed on March 1, and payment will be received April 1. The Japanese company has agreed to pay $100,000 for the equipment in Japanese yen (JY). The exchange rate on March 1st is 132JY to the dollar. According to the terms of the agreement, your company will receive 13,200,000JY (132 × $100,000) and will then exchange the yen for dollars in the foreign exchange market.
