Question
You expect to receive 40,000,000 Japanese Yen at the close of business day, Friday, September 15. You decide to hedge your risk with the futures
You expect to receive 40,000,000 Japanese Yen at the close of business day, Friday, September 15. You decide to hedge your risk with the futures contracts. Assume that you enter into the futures position at the close of day on Tuesday, September 12. Futures and spot data are provided in the file HW1_data.doc. The contract size is 12,500,000 yen. a. Describe the position you decide to enter (long or short). b. Describe the contract (what month, and what quantity). c. Document the gain or loss due to marking to market every day that your position is open. d. What is the total cost in US$ after you have closed out your futures positions, and made your payment? e. What would have been the total cost in US$, if you had not hedged? Did you benefit from hedging? f. What was the effective cost per JPY? g. What would have been the total cost in US$ if you could have bought (or sold) a contract for exactly the amount you wanted to hedge (40,000,000 Yen)? h. Identify problems with your hedge. When do you think it is useful to hedge using futures and when it is not?
data:
Japanese Yen Data
Daily Settlements for Japanese Yen Future (FINAL)Trade Date: Wednesday, 09/13/2023
| Month | Open | High | Low | Last | Change | Settle | Estimated Volume | Prior Day Open Interest |
|---|---|---|---|---|---|---|---|---|
| SEP 23 | .0068035 | .0068075 | .0067720 | .0067865 | -.0000170 | .0067875 | 211,037 | 161,827 |
| OCT 23 | .0068340 | .0068380 | .0068040 | .0068185B | -.0000175 | .0068180 | 973 | 1,116 |
| NOV 23 | .0068495 | .0068680B | .0068355A | .0068605B | -.0000175 | .0068485 | 42 | 103 |
| DEC 23 | .0069035 | .0069070 | .0068720 | .0068860 | -.0000175 | .0068870 | 112,146 | 107,272 |
| JAN 24 | - | - | - | - | -.0000180 | .0069145 | 0 | 4 |
| MAR 24 | .0069950 | .0069965 | .0069920 | .0069855A | -.0000185 | .0069915 | 55 | 427 |
Daily Settlements for Japanese Yen Futures (FINAL)Trade Date: Friday, 09/15/2023
| Month | Open | High | Low | Last | Change | Settle | Estimated Volume | Prior Day Open Interest |
|---|---|---|---|---|---|---|---|---|
| SEP 23 | .0067820 | .0067870 | .0067585 | .0067635A | -.0000200 | .0067635 | 40,726 | 58,669 |
| OCT 23 | .0068120 | .0068170 | .0067900 | .0067950 | -.0000205 | .0067940 | 895 | 1,204 |
| NOV 23 | .0068440 | .0068475B | .0068205A | .0068250 | -.0000200 | .0068245 | 91 | 187 |
| DEC 23 | .0068810 | .0068860 | .0068575 | .0068625 | -.0000200 | .0068625 | 164,343 | 232,161 |
| JAN 24 | - | - | - | - | -.0000155 | .0068910 | 0 | 4 |
| MAR 24 | .0069835 | .0069905B | .0069670 | .0069670A | -.0000200 | .0069680 | 18 | 480 |
Spot data:
| Jul.Day | YYYY/MM/DD | Wdy | USD/JPY |
| 2460200 | 2023/09/12 | Tue | 0.0067994 |
| 2460201 | 2023/09/13 | Wed | 0.0067818 |
| 2460202 | 2023/09/14 | Thu | 0.0067925 |
| 2460203 | 2023/09/15 | Fri | 0.0067647 |
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