You have to make a 90,000,000 payment in Japanese Yen on close of business day, Friday, September 15. You decide to hedge your risk with the futures contracts. Assume that you enter 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. Repeat steps a) e) assuming that you expect a payment of 900,000 British pounds on close of business day, Friday, September 15. Assume that you enter 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 62,500 British pounds.