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Plum Co, a company based in Japan, has entered into a contract with a New Zealand company to purchase an item of machinery. The cost in New Zealand dollars, is NZD 400,000 and is due to be paid in six months. Plum Co decides to enter into a forward exchange contract with its bank, who has offered a contract at the following six-month rates:
Japanese yen 77.2-78.2 = 1 New Zealand dollar
Calculate, to the nearest dollar, the value of New Zealand dollars that would be needed to settle the purchase invoice if the forward exchange contract is used
Sir i can’t figure out this question what they are talking to do
Using a forward exchange contract helps Plum Co manage its currency exposure, ensuring that the cost of the machinery remains fixed and predictable, thereby aiding in better financial planning and risk management.
So the question wants to the value of nearest NZ $ that would have to be paid to settle the invoice.
Plum NZ co is buying a machine , they will have to pay in Yen, so they have to buy Yen, the bank sells low so it’s 77.2
So it will cost them 400,000/77.2 = 5181 NZ $
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