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1) Suppose you buy widgets from a Japanese supplier and owe them 100M Yen in 90 days. The expected exchange rate in 90 days is
1) Suppose you buy widgets from a Japanese supplier and owe them 100M Yen in 90 days. The expected exchange rate in 90 days is $0.01/Yen. If you hedged this transaction with futures, even though the futures provide a perfect hedge, would you prefer that the Yen unexpectedly strengthened or weakened against the dollar? Provide at least one reason that explains your answer.
2) In spite of both the theoretical and practical advantages to hedging, provide ONE single reason why some, even large and sophisticated firms, choose not to hedge.
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