Suppose that OSG undertakes the same mandatory hedging policy as S. Corporation, the American company whose minimum forward-cover schedule is shown in Exhibit 9. Apply this schedule to the US$1 million account receivable case for OSG and find the expected total end-of-period value of the position taken by OSG. OSG is expected to receive a US dollar (foreign currency) payment of US$1 million in three months. The spot rate was 115.03/$, and the forward rate 116.18/$ as shown in Appendix 1. Use Exhibit 10 for minimum forward-cover. Note that the yen is the home currency for OSG.

a. What would be the amount of forward cover required?

b. If the spot rate in three months was expected to be 110.00/$, what would be the amount in US dollars, covered and uncovered?

c. What would be the expected total end-of-period yen value ofthe position taken in part (2)? Suppose the spot rate in three months will be 115.00/$.

EXHIBIT 9: OSG'S FOREIGN CURRENCY ACCOUNT PAYABLES AS OF NOVEMBER 30TH 2005 Book Value As of November 30th 2005 Foreign Exchange Foreign Currencies Yen Equivalent Spot Rate Yen Profit and Loss 2,000,134 $ (no forward contract) $279,946.86 31,501,003 119.67/$ 33,501,137 2,567,221.19 352,236,559 140.94/ 361,824,140 9,587,581 (no forward contract) (no forward contract) Total 465.40 205.62/ 95,695 79.00 95,616 383,833,178 395,420,972 11,587,794 Source: OSG, "Supplement to Annual Report, 2005 by Support Center Finance Group", April 25th 2006. EXHIBIT 10: ACCOUNT RECEIVABLES, MINIMUM FORWARD: COVER BY A US CORPORATION 1. S. Corporation in the US did away with selective hedging. If the maturity of the transaction is known, all cash flow denominated in foreign currency must adhere to the forward contract cover formula determined by the company's board in advance. Remaining amounts, if any, may be left uncovered. The points, paying or receiving on the forward rate, are the forward rate's premium or discount defined by the formula in 2. Exposure Coverage Required 90-180 days Less than 90 days 45% "paying the points forward" "receiving the points forward" 75% 100% 180 days or longer 50% 60% 90% 2. Use the following formula to find the forward rate's premium or discount. The forward premium or discount is the percentage difference between the spot and forward exchange rate, stated in annual percentage terms. When the foreign currency price of the home currency (US dollar) is used as in this case of yen per dollar, the formula for the percent- per-annum premium or discount (denoted f here for yen) becomes:23 360 Spot - Forward Forward X x 100 days to maturity EXHIBIT 9: OSG'S FOREIGN CURRENCY ACCOUNT PAYABLES AS OF NOVEMBER 30TH 2005 Book Value As of November 30th 2005 Foreign Exchange Foreign Currencies Yen Equivalent Spot Rate Yen Profit and Loss 2,000,134 $ (no forward contract) $279,946.86 31,501,003 119.67/$ 33,501,137 2,567,221.19 352,236,559 140.94/ 361,824,140 9,587,581 (no forward contract) (no forward contract) Total 465.40 205.62/ 95,695 79.00 95,616 383,833,178 395,420,972 11,587,794 Source: OSG, "Supplement to Annual Report, 2005 by Support Center Finance Group", April 25th 2006. EXHIBIT 10: ACCOUNT RECEIVABLES, MINIMUM FORWARD: COVER BY A US CORPORATION 1. S. Corporation in the US did away with selective hedging. If the maturity of the transaction is known, all cash flow denominated in foreign currency must adhere to the forward contract cover formula determined by the company's board in advance. Remaining amounts, if any, may be left uncovered. The points, paying or receiving on the forward rate, are the forward rate's premium or discount defined by the formula in 2. Exposure Coverage Required 90-180 days Less than 90 days 45% "paying the points forward" "receiving the points forward" 75% 100% 180 days or longer 50% 60% 90% 2. Use the following formula to find the forward rate's premium or discount. The forward premium or discount is the percentage difference between the spot and forward exchange rate, stated in annual percentage terms. When the foreign currency price of the home currency (US dollar) is used as in this case of yen per dollar, the formula for the percent- per-annum premium or discount (denoted f here for yen) becomes:23 360 Spot - Forward Forward X x 100 days to maturity