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Cullen Pharmaceuticals is a U.S. multinational that just sold JPY 70 million of goods to a Japanese customer and this accounts receivable is due in

Cullen Pharmaceuticals is a U.S. multinational that just sold

JPY 70 million of goods to a Japanese customer and this accounts receivable is due in 30 days. The spot exchange rate is $0.008987/JPY, while the 30-day forward rate is $0.008671/JPY. Cullen is interested in hedging this account receivable from exchange rate exposure (currency exposure) by using a forward market hedge.

(1) Please construct a strategy that hedges Cullen from currency exposure using a forward contract. You need to include details like, buy or sell forward contract, at what price, the total contract size, and for how long.

(2) If you choose to hedge using forward hedge, considering the following three scenarios after 30 days: exchange rate turns out to be $0.008525/JPY, $0.008987/JPY, $0.009145/JPY, how much is your future dollar proceeds of AR using forward hedge?

(3) If you choose not to hedge at all, considering the following three scenarios after 30 days: exchange rate turns out to be $0.008525/JPY, $0.008987/JPY, $0.009145/JPY, how much is your future dollar proceeds of AR without hedge?

(4) How many more (less) US dollar would you receive when using forward hedge than no hedge at all? When do you think the hedge would be beneficial?

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