QUESTION TWO The Dutch manufacturer Cloghopper has the following JPY commitments: i. A/R of JPY 1,000,000 for thirty days. ii. A/R of JPY 500,000 for ninety days. Sales contract (twelve months) of JPY 30,000,000. A forward sales contract of JPY 500,000 for ninety days. A deposit that at maturity, in three months, pays JPY 500,000. A loan for which Cloghopper will owe JPY 8,000,000 in six months. vii. A/P of JPY 1,000,000 for thirty days. viii. A forward sales contract for JPY 10,000,000 for twelve months. ix. A/P of JPY 3,000,000 for six months. Required: (a) Compute Cloghopper's net exposure for each maturity? (10 marks) (b) Explain how would Cloghopper hedge the exposure for each maturity on the forward market? (8 marks) (C) Assume that the interest rate is 5 percent (compound, per annum) for all maturities and that this rate will remain 5 percent with certainty for the next twelve months. Also, ignore bid-ask spreads in the money market. How would the company hedge its exposure on the spot market and the JPY money market? Describe all money-market transactions in detail. (7 marks) QUESTION TWO The Dutch manufacturer Cloghopper has the following JPY commitments: i. A/R of JPY 1,000,000 for thirty days. ii. A/R of JPY 500,000 for ninety days. Sales contract (twelve months) of JPY 30,000,000. A forward sales contract of JPY 500,000 for ninety days. A deposit that at maturity, in three months, pays JPY 500,000. A loan for which Cloghopper will owe JPY 8,000,000 in six months. vii. A/P of JPY 1,000,000 for thirty days. viii. A forward sales contract for JPY 10,000,000 for twelve months. ix. A/P of JPY 3,000,000 for six months. Required: (a) Compute Cloghopper's net exposure for each maturity? (10 marks) (b) Explain how would Cloghopper hedge the exposure for each maturity on the forward market? (8 marks) (C) Assume that the interest rate is 5 percent (compound, per annum) for all maturities and that this rate will remain 5 percent with certainty for the next twelve months. Also, ignore bid-ask spreads in the money market. How would the company hedge its exposure on the spot market and the JPY money market? Describe all money-market transactions in detail. (7 marks)