2. You have to make a 90,000,000 payment in Japanese Yen on close of business day, Friday, January 29th. You decide to hedge your risk with the futures contracts. Assume you that you enter into the futures position at a close of day on Tuesday, January 26th. Futures and spot data are provided in the file HW1_data.doc. Contract size is 12,500,000 yen.

a. Describe the position you decide to enter (long or short).

b. Describe the contract (what month, and what quantity).

c. Document the gain or loss due to marking to market every day that your position is open.

d. What is the total cost in US$ after you have closed out your futures 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. Repeat steps a) e) assuming that you expect a payment of 900,000 British pounds on close of business day, Friday, January 29th. Assume you that you enter into the futures position at a close of day on Tuesday, January 26th. Contract size is 62,500 British pounds.

Daily Settlements for Japanese Yen Future (FINAL)Trade Date: Wednesday, 01/27/2021 Estimated Prior Day Month Open High Low Last Change Settle Volume Open Interest FEB 21 96425 96545B 95995 A 96125B -465 96035 91 508 MAR 21 96550 96580 96010 96095 -465 96060 113,387 192,792 APR 21 96580 96620B 196065 A 96065A -465 96105 114 14 MAY 21 96140 A 96140A -465 96135 0 0 JUN 21 96550 96685B 96125 A 96230B -465 96165 55 211 SEP 21 96775B 96260 A 96775B -470 96270 0 190 # Daily Settlements for Japanese Yen Futures (FINAL)Trade Date: Friday, 01/29/2021 Estimated Prior Day Month Open High Low Last Change Settle Volume Open Interest FEB 21 9568595715 95310A 195475A -465 95485 81 520 MAR 21 95970 95990 95325 95550 -465 95510 131,067 199,589 APR 21 95970 95970 195380A 195545A -470 95550 160 82 MAY 21 95460A 195460A -465 95580 0 0 JUN 21 95815 96085B 95435A 95625B -470 95610 126 217 SEP 21 95545A 95545A -470 95710 1 190 Spot data: Juh Day YYYY/MM/DD Wdy USD/JPY 24592412021/01/26 Tue 0.0096441 24592422021/01/27 Wed 0.0096125 24592432021/01/28 Thu|0.0095863 24592442021/01/29 Fri 0.0095540 Daily Settlements for Japanese Yen Future (FINAL)Trade Date: Wednesday, 01/27/2021 Estimated Prior Day Month Open High Low Last Change Settle Volume Open Interest FEB 21 96425 96545B 95995 A 96125B -465 96035 91 508 MAR 21 96550 96580 96010 96095 -465 96060 113,387 192,792 APR 21 96580 96620B 196065 A 96065A -465 96105 114 14 MAY 21 96140 A 96140A -465 96135 0 0 JUN 21 96550 96685B 96125 A 96230B -465 96165 55 211 SEP 21 96775B 96260 A 96775B -470 96270 0 190 # Daily Settlements for Japanese Yen Futures (FINAL)Trade Date: Friday, 01/29/2021 Estimated Prior Day Month Open High Low Last Change Settle Volume Open Interest FEB 21 9568595715 95310A 195475A -465 95485 81 520 MAR 21 95970 95990 95325 95550 -465 95510 131,067 199,589 APR 21 95970 95970 195380A 195545A -470 95550 160 82 MAY 21 95460A 195460A -465 95580 0 0 JUN 21 95815 96085B 95435A 95625B -470 95610 126 217 SEP 21 95545A 95545A -470 95710 1 190 Spot data: Juh Day YYYY/MM/DD Wdy USD/JPY 24592412021/01/26 Tue 0.0096441 24592422021/01/27 Wed 0.0096125 24592432021/01/28 Thu|0.0095863 24592442021/01/29 Fri 0.0095540