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