Assume a firm will receive JPY25,000,000 in six months and decides to hedge using futures of JPY at a 6-month futures rate of $0.008734.

(a) To hedge the exchange rate risk, will the firm purchase or sell the Japanese yen futures contract? Is the firm's position in the Japanese yen futures contract a long or short position?

(b) Suppose that six months later the spot exchange rate for JPY is $0.008629. Calculate the real cost of the hedging. Is the hedging favorable or unfavorable? Why? Be sure to show the details of your calculations.