3. a) A Japanese company must pay to its European subcontractor 926,000 for the trade agreed today. The payment is due in the middle of March. al) To what kind of currency risk is the Japanese company exposed? a2) How could it hedge best against that risk with using either March euro futures for which the contract size is 125,000 or March yen futures for which the contract size is 12,500,000 yens. The current spot rate for euro is 135 yens and the corresponding March futures rate is 133 yens. The delivery date for the currency futures is the third Wednesday of contract month. a3) In the middle of March, the corresponding spot rate is 136. Assess the efficiency of hedging by calculating the profits and losses from spot and futures transactions (Assume that the convergence of spot to futures has decreased the basis to zero by the middle of March). a4) Was the hedge perfect? If not, why