Sells and installs water purification equipment

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Reference no: EM131556759

Krystal is a U.S.-based company that manufactures, sells, and installs water purification equipment. On April 11, the company sold a system to the City of Nagasaki, Japan, for installation in Nagasaki's famous Glover Gardens. The sale was priced in yen at ¥25,000,000, with payment due in three months. The exchange rate and interest rate data are shown in the following tables:

Spot exchange rate: ¥117.974/$

1-month forward rate: ¥117.505/$

3-month forward: ¥116.610/$

Money Rates United States Japan

One month 4.9125% 0.09500%

Three months 5.0000% 0.09500%

Krystal can be borrowing yen from Japanese banks at a spread of two percentage points above the Japanese money rate. Krystal's weighted average cost of capital is 15%, and the company wishes to protect the dollar value of this receivable.

Reference no: EM131556759

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