Question
1.You expect to receive 90,000,000 Japanese Yen on close of business day, Friday, September 2nd. You decide to hedge your risk with futures contracts. Assume
1.You expect to receive 90,000,000 Japanese Yen on close of business day, Friday, September 2nd. You decide to hedge your risk with futures contracts. Assume that you enter into the position at close of day on Tuesday, August 30th. Futures and spot data is provided below.
a.Describe the position you decide to enter (long or short).
b.Describe the contract (what month, and what quantity).
c.Document the price gain or loss every day that your position is open.
d.What is the total cost in US$ after you have closed out your positions, and made your payment?
e.What would have been the total cost in US$, if you had not hedged? Did you benefit from hedging?
f.What was the effective cost per JPY?
g.What would have been the total cost in US$ if you could have bought (or sold) a contract for exactly the amount you wanted to hedge (90,000,000 Yen)?
h.Identify problems with your hedge. When do you think it is useful to hedge using futures and when it is not?
Japanese Yen Futures Data
Daily Settlements for Japanese Yen Futures Trade Date: Wednesday, 08/31/2016
| Month | Open | High | Low | Last | Change | Settle | Estimated Volume | Prior Day Open Interest |
|---|---|---|---|---|---|---|---|---|
| SEP 16 | 97140 | 97275 | 96640 | 96750 | -430 | 96740 | 109,315 | 158,411 |
| DEC 16 | 97575 | 97670B | 97045A | 97130B | -425 | 97140 | 2,743 | 5,530 |
| MAR 17 | - | 98010B | 97555A | 97590A | -440 | 97545 | 0 | 270 |
| JUN 17 | 98230 | 98265B | 98070A | 98070A | -440 | 98035 | 1 | 109 |
| SEP 17 | - | - | 98520A | 98535B | -440 | 98500 | 0 | 9 |
| DEC 17 | - | - | - | - | -445 | 99000 | 0 | 0 |
Daily Settlements for Japanese Yen Futures Trade Date: Friday, 09/02/2016
| Month | Open | High | Low | Last | Change | Settle | Estimated Volume | Prior Day Open Interest |
|---|---|---|---|---|---|---|---|---|
| SEP 16 | 96900 | 97370 | 95895 | 96320A | -570 | 96250 | 174,571 | 153,908 |
| DEC 16 | 97295 | 97705B | 96300 | 96655B | -570 | 96645 | 4,236 | 8,248 |
| MAR 17 | 97300 | 98025B | 96760A | 97000 | -575 | 97055 | 14 | 272 |
| JUN 17 | - | 98450B | 97295A | 97470B | -565 | 97550 | 0 | 109 |
| SEP 17 | - | 98935B | 97750A | 97870B | -565 | 98015 | 0 | 5 |
| DEC 17 | - | - | 98430A | 98430A | -565 | 98510 | 0 | 0 |
Spot data:
| Jul.Day | YYYY/MM/DD | Wdy | USD/JPY |
| 2457631 | 2016/08/30 | Tue | 0.0097124 |
| 2457632 | 2016/08/31 | Wed | 0.0096693 |
| 2457633 | 2016/09/01 | Thu | 0.0096895 |
| 2457634 | 2016/09/02 | Fri | 0.0096007 |
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Monetary Policy Strategy
Authors: Frederic S. Mishkin
1st Edition
0262513374, 978-0262513371
