Question
Disney will receive royalties in Yen. Disney has decided to enter in a short position future contract on Monday morning in order to hedge the
Disney will receive royalties in Yen. Disney has decided to enter in a short position future contract on Monday morning in order to hedge the risk. Strike price is $0.000124/. Future ends at the end of Wednesday (Contract size is 12.5m) a) Calculate the daily profits and losses if the spot rates are: Monday $0.00011/, Tuesday $0.00013 / and Wednesday $0.00017/. b) Calculate your balance in your account at the end of Wednesday if performance bond is $300 and maintenance performance bond $150. c) Disney has also the chance to sign a forward contract with JP Morgan to exchange Yens at 0.00013$/Yen at the same maturity date of the future. What option is better for Disney: futures or forward?
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