Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U. S. firm that borrowed Japanese yen and used the proceeds for a U.S. project.

Chapter 3 homework questions 4. change fee results on borrowing

Alternate Price Results on Borrowing

The appreciation of the Japanese yen in opposition to the U.S. greenback would result in a rise in the price of borrowing for a U.S. agency that borrowed Japanese yen, as they must use extra {dollars} to buy every yen and thus pay a better quantity when paying again the mortgage in {dollars}. This might end in decreased income for investments made with this cash and even losses if markets transfer in opposition to their place whereas having to pay elevated curiosity prices as a result of foreign money change fee results.

Floating change charges as of 1973 resulted from the collapse of the Bretton Woods system in 1971 which had beforehand pegged currencies to a set fee in opposition to gold. After this, numerous nations sought to liberalize their economies and permit for extra versatile change charges with different nations, culminating in 1973 when most main currencies moved to floating peer-to-peer change charges as an alternative.

On this case, it could be extra worthwhile to take the provide from the vacationer. By accepting 1,300 pesos on your C$200 you might be primarily making an change fee of $.77 per peso ($200 / 1300 = $0.77), whereas cashing in on the airport international change desk will solely earn you a fee of $.60 per Canadian greenback ($120 / 200 = $0.6). Thus, for those who settle for the provide of 1,300 pesos on your C$200 after which use these Pesos to purchase USD when travelling to Mexico, it could be a extra financially smart choice than cashing them in on the airport international change desk.

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