Calculate the expected cash flows (and standard deviation, where appropriate) for all hedging possibilities. You need to identify the best possible hedging technique. You will receive 4 points for each correct calculation (6 x 4 =24) and 6 points for the correct identification of the most appropriate hedging technique.

Company X has payables of 3,234,569 Yen in 3 months. The spot JPYUSD is 0.0086. Forecast indicates that the Yen could either end up with a value of $0.0081 (34% chance), a value of $0.0084 (28% chance) or a value of $0.0093 (38% chance). The US interest rates are: deposit 3.23% and borrowing 3.45% and the Yen rates are: deposit 4.68% and borrowing 4.76%. 3-month forwards on the Yen are priced for $0.0086. Put options with 3 months expiration and strike price of $ 0.0089 are available for a premium of USD 50.000026 and call options with 3 months expiration and strike price of $ 0.0084 are available for a premium of USD $0.000025.

*

In your answer below, you could provide a 4x8 table (see top right corner