Company X has payables of 2,988,760 Yen in 9 months. The spot JPYUSD is 0.0087. Forecast indicates that the Yen could either end up with a value of $0.0083 (24% chance). A value of $0.0088 (54%) chance or a value of $0.0093 (22% chance). The US interest rates are: deposit 3.99% and borrowing 4.01% and the Yen rates are: deposit 3.68% and borrowing 3.72% . 

9-month forwards on the Yen are priced for $0.0087. Put options with 9 months expiration and strike price of &0.0089 are available for a premium USD $0.000026 and call options with 9 months expiration and strike price of $0.0092 are available for a premium of USD $0.00027. 

 

1. Calculate the expected cash flows (and standard deviation, where appropriate) for all hedging possibilities and select most appropriate hedging tool.

Answer rating: 100% (QA)

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