1.On January 10, 2011, IBM filed an order from Japanese company for computers worth of 125 million yen. The export sale is denominated in Japanese yen and is due on March 4^th, 2011. IBM decides to hedge its yen receivables into IMM futures contracts. The spot rate is 130 yen per dollar and the March futures price is 125 yen per dollar.

a.Calculate the number of futures contracts that IBM must sell to offset its yenexchange risk. Contract size is 12,500,000 yen.

b.On March 4^th, the spot rate turns out to be 131 yen per dollar, while the March futures price is 130 yen per dollar. Calculate IBM's dollar gain or loss on its futures position. Was this hedge effective? Show your calculations.