Clearview Software, a US exporter, is concerned about the depreciation of JPY against USD due to JPY receivables of JPY800,000,000 in 180 days. To hedge (protect himself/herself) the position, the exporter decides to use a combination of the forward and options contracts. The Clearview receives the following outright 180-day forward quote from its banker:

USD/JPY 118.40 - 118.90

Clearview decides to sell JPY 400,000,000 180-day forward

To cover the JPY 300m portion of the receivable, the company treasurer buys an over-the-counter put option and at a strike price of JPY120, at a 2% premium, and leaves JPY100m potion of the exposure uncovered.

When the option was purchased, the spot rate was USD/JPY117.00-117.10. Clearview's cost of capital is 10%.

a) calculate the forward points Clearview receive or pay in its forward contract? what does this suggest about the US and Japanese interest rates?

b) What is the net amount of dollars Clearview gets i 180 days if the spot rate on that date is USD/JPY122.10-122.20?

Answer rating: 100% (QA)

a The outright 180day forward quote is USDJPY 11840 11890 To sell JPY 400000000 forward Clearview wi... View the full answer