A Canadian company is exporting lumber to Japan. The sales agreement calls for a payment of 8,000,000 yen to the Canadian company in 90 days. The current spot rate is 86 yen per dollar.
a. Is the Canadian company worried that the yen may appreciate or depreciate in value over the next 90 days?
b. If the Canadian company decides to hedge using a forward contract and the 90-day for- ward rate is 85 yen per dollar, how many dollars will it receive in 90 days?
c. By how much is the Canadian company better or worse off if it does not hedge and the spot rate in 90 days is (i) 83.2 yen per dollar or (ii) 86.5 yen per dollar?