XYZ Corp. imports car parts from Japan and ordered parts worth 100 million Japanese Yen on January 1st. This money will be payable on April 1st in Japanese Yen. In order to hedge their position XYZ entered in a 3-month forward contract. The spot rate for Japanese Yen on January 1st is $0.008 and also the 3-month forward rate is $0.009 at that time. The Japanese firm cancelled the order on February 1st as their factory workers are on strike. XYZ Corp. now needs to offset their hedge on Feb 1st to meet their commitment on April 1st. At this time Japanese yen spot rate is $0.0087, and 2-month forward rate is at 3% discount. The offsetting contract will be a forward contract to for April 1st and XYZ will generate a profit/loss from this transaction of U.S. dollars. (Igno interest and please do not roundoff) sell yen; loss of $60,000 sell yen: gain of $56,100 sell yen; loss of $56,100 sell yen; gain of $60,000 buy yen; gain of $30,000 Previous Next MacBook Pro