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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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