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5. Currency options You are a US importer to Japan. For goods bought in Japan, you are to pay 250 million Japanese yen (JPY) in

5. Currency options

You are a US importer to Japan. For goods bought in Japan, you are to pay 250 million Japanese yen (JPY) in three months. You wish to hedge the currency-risk using options. Please answer the following questions:

a. What type of currency option on the Japanese yen would you use? Would you sell them or buy them?

b. Assuming each JPY currency option has a face value of 12.5 million JPY how many such currency options do you need?

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