Sakura Inc. (a Japanese kitchen appliance company) purchased $1 million of kitchen appliances from a U.S. firm, payable in 6 months. Currently, the 6-month forward exchange rate is $1=121.32 and the foreign exchange advisor predicts that the spot exchange rate is likely to be $1=123.55 in 6 months.

(1) What is the expected gain/loss from a forward hedge if the foreign exchange advisors prediction is correct?

(2) If you were the financial manager of Sakura, would you recommend hedging this USD payable? Why or why not?

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