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ABC Company, based in the United States, imports goods from a supplier in Japan and expects to pay 100 million Japanese yen (JPY) in 3

ABC Company, based in the United States, imports goods from a supplier in Japan and expects to pay 100 million Japanese yen (JPY) in 3 months. The current spot exchange rate is 1 USD = 110 JPY, and the 3-month forward rate is 1 USD = 108 JPY.

Please explain how does the use of a forward contract can help ABC Company manage its exchange rate risk? What position should be taken (long or short?) What are the potential benefits and concerns for ABC Company in this scenario?

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