MPC imports computer equipment from Japan for sale in the U.S. market.
Monthly imports have averaged ¥250 million to ¥275 million over the past year.
A similar volume is expected for the coming year. Because of the volatility of the exchange rate between the Japanese yen and the U.S. dollar, MPC's management believes that it must hedge these imports. Using the "typical" exposure of ¥250 million for a ninety-day period, how should the company manage its current position? Current market data for various instruments appear as follows:
• Spot JPY/USD = 108.09
• Ninety-day forward JPY/USD = 106.42
• September futures = $0.95 per ¥100 (¥12.5 million per contract); delivery date: September 17
• Ninety-day yen call over-the-counter (OTC) option = $0.021 per ¥100 (¥108/$1 strike price)