Question
You have to make a 40,000,000 payment in Japanese Yen on close of business day, Friday, September 11th. You decide to hedge your risk with
You have to make a 40,000,000 payment in Japanese Yen on close of business day, Friday, September 11th. You decide to hedge your risk with the futures contracts. Assume you that you enter into the futures position at a close of day on Tuesday, September 8th. Futures and spot data are provided in the file HW1_data.doc. Contract size is 12,500,000 yen.
- Describe the position you decide to enter (long or short).
- Describe the contract (what month, and what quantity).
- Document the gain or loss due to marking to market every day that your position is open.
- What is the total cost in US$ after you have closed out your futures positions, and made your payment?
- What would have been the total cost in US$, if you had not hedged? Did you benefit from hedging?
- Repeat steps a) – e) assuming that you expect a payment of 900,000 British pounds on close of business day, Friday, September 11th. Assume you that you enter into the futures position at a close of day on Tuesday, September 8th. Futures and spot data are provided in the file HW1_data.doc. Contract size is 62,500 British pounds.
Japanese Yen Data
Daily Settlements for Japanese Yen Future (FINAL)Trade Date: Wednesday, 09/09/2020
Month | Open | High | Low | Last | Change | Settle | Estimated Volume | Prior Day Open Interest |
SEP 20 | 94380 | 94535 | 94100 | 94180 | -145 | 94160 | 145,486 | 123,315 |
OCT 20 | 94425 | 94595 | 94160A | 94240B | -145 | 94210 | 182 | 395 |
NOV 20 | 94460 | 94615 | 94185 | 94270B | -140 | 94245 | 94 | 407 |
DEC 20 | 94525 | 94650 | 94210 | 94305A | -140 | 94280 | 84,797 | 26,967 |
JAN 21 | - | - | - | - | -140 | 94345 | 0 | 0 |
MAR 21 | - | 94800B | 94425A | 94485B | -140 | 94465 | 0 | 369 |
Daily Settlements for Japanese Yen Futures (FINAL)Trade Date: Friday, 09/11/2020
Month | Open | High | Low | Last | Change | Settle | Estimated Volume | Prior Day Open Interest |
SEP 20 | 94215 | 94295 | 94095 | 94200 | +5 | 94240 | 33,134 | 36,168 |
OCT 20 | 94250 | 94330B | 94160A | 94260A | +5 | 94290 | 275 | 284 |
NOV 20 | 94330 | 94370 | 94195A | 94295A | +5 | 94320 | 18 | 319 |
DEC 20 | 94310 | 94405 | 94215 | 94305 | +5 | 94355 | 73,035 | 115,717 |
JAN 21 | - | - | - | - | +10 | 94420 | 0 | 0 |
MAR 21 | - | 94540B | 94470A | 94540B | +10 | 94540 | 2 | 369 |
Spot data:
Jul.Day | YYYY/MM/DD | Wdy | USD/JPY |
2459101 | 2020/09/08 | Tue | 0.0094383 |
2459102 | 2020/09/09 | Wed | 0.0094132 |
2459103 | 2020/09/10 | Thu | 0.0094211 |
2459104 | 2020/09/11 | Fri | 0.0094191 |
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
a Determination of Position to be entered ie Long or Short There is a payable of 900 lacs as on Sept...
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Fundamentals of corporate finance
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
10th edition
978-1260013955, 78034639, 978-0078034633
