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Q5 A U.S. firm is receiving 185m JPY in 3 months' time. JPY Futures are available on the Chicago Mercantile Exchange (CME) with a contract

Q5 A U.S. firm is receiving 185m JPY in 3 months' time. JPY Futures are available on the Chicago Mercantile Exchange (CME) with a contract size of 12,500,000 JPY and currently trade at 0.009502 JPY/USD. The contract maintenance margin is 3600 USD with an initial margin of 110% of the maintenance margin. a) Describe the firm's FX spot market currency exposure (long/short, size of exposure) before hedging. b) Describe how this firm would hedge its position using futures contracts. c) How many contract positions on the CME should be taken if the goal is to minimise the firm's exposure to risk?

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