1. Assume that the transactions listed in the first column of the following table are anticipated by U.S. firms that have no other foreign transactions. Place an X in the table wherever you see possible ways to hedge each of the transactions.

a. Georgetown Co. plans to purchase Japanese goods denominated in yen.

b. Harvard, Inc., sold goods to Japan, denominated in yen.

c. Yale Corp. has a subsidiary in Australia that will be remitting funds to the U.S. parent.

d. Brown, Inc., needs to pay off existing loans that are denominated in Canadian dollars.

e. Princeton Co. may purchase a company in Japan in the near future (but the deal may not go through).

ANSWER:

Forward Contract Futures Contract Options Contract

Forward Forward Buy Sell Purchase Purchase

Purchase Sale Futures Futures Calls Puts

a.

b.

c.

d.

e.