3 Assume there are speculators who attempt to capitalize on their expectation of the yen’s movement over the two months between the order and delivery dates by either buying or selling yen futures now and buying or selling yen at the future spot rate. Given this information, what is the expectation on the order date of the yen spot rate by the delivery date? (Your answer should consist of one number.)

Blades plc needs to order supplies two months ahead of the delivery date. It is considering an order from a Japanese supplier that requires a payment of 12.5 million yen payable as of the delivery date. Blades has two choices:
l Purchase two call options contracts (since each option contract represents 6 250 000 yen).
l Purchase one futures contract (which represents 12.5 million yen).
The futures price on yen has historically exhibited a slight discount from the existing spot rate. However, the firm would like to use currency options to hedge payables in Japanese yen for transactions two months in advance. Blades would prefer hedging its yen payable position because it is uncomfortable leaving the position open given the historical volatility of the yen.
Nevertheless, the firm would be willing to remain unhedged if the yen becomes more stable someday.