Company A is a USA company and Company B is a Japanese company. Company A is negotiating with Company B to sell its operation in Tokyo to Company B. The deal will be settled in Japanese yen. To avoid a loss at the time when the deal is closed due to a sudden devaluation of yen relative to US dollar, Company A has decided to take a short futures position to hedge this risk. 

You are given the following information: 

• The deal will be closed 3 months from now. 

• The sale price of the Tokyo operation has been settled at ¥120 billion Japanese yen.

• The current exchange rate is ¥120 per US dollar. 

• The continuously compounded risk-free interest rate in the US is 3.5% per annum. 

• The continuously compounded risk-free interest rate in the Japan is 1.5% per annum.

• The daily volatility of the exchange rate is 0.2617%. 

Calculate the futures price. 

Answer rating: 100% (QA)

The futures price is calculated using the following formula F S x erRT W... View the full answer