Question
It is March 1. A US company expects to receive 80 million Japanese yen at the end of October. Yen futures contracts on the CME
It is March 1. A US company expects to receive 80 million Japanese yen at the end of October. Yen futures contracts on the CME have delivery months of March, June, September and December. One contract is for 12.5 million yen and the current spot price for the yen is 0.9175 ents/yen. The current futures prices are: June 0.9350 , Sept 0.9625, and Dec 0.9800. Suppose in October, when the hedge is closed out, the, the spot price and (relevant) futures price for the yen are 0.9200 and 0.9250 respectively.
Which contract should the company use to hedge the FX risk and, when the hedge is closed out, what is the effective price paid by the company for the yen, and what is its effective profit on the hedge?
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