Question
Toyota USA is projecting an after-tax profit of $ 5 million for the quarter, which it plans to remit in its entirety to its parent
Toyota USA is projecting an after-tax profit of $ 5 million for the quarter, which it plans to remit in its entirety to its parent company in Japan 60 days from today. The currency of the remittance will be Japanese Yen. The current spot rate is JPY 120/USD and the 60-day futures rate is JPY 125/ USD. The contract size for JPY is 12,500,000. To lock in the exchange rate, Toyota USA should ___ a. (buy/sell) ________ b. (number) of JPY contracts on the futures market. The locked in exhcange rate will result in a remittance of JPY _____c. . If Toyota estimates that the future spot rate 60 days from now is JPY 130/ $, the company _____ d. (should/should not) go ahead with the futures hedge.
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