Question 3

JC bank in Japan has committed to deliver yen in 3 months to MT Ltd in US, a corporate customer. The spot rate is 118 yen to the dollar and the 3 month forward rate is 106 yen per dollar. In recent years, there are an increasing trading dealing with foreign currency in JC bank.

Required:

(a)Are there costs to hedging this exposure with the forward market? Explain.(10 marks)

ExplainFIVE (5)reasons about the level of foreign currency trading has increased in JC bank?(15 marks)