You have to make a 90,000,000 payment in Japanese Yen on the close of business day, Friday,
Question:
- You have to make a 90,000,000 payment in Japanese Yen on the close of business day, Friday, January 26. You decide to hedge your risk with futures contracts. Assume that you enter into the futures position at the close of day on Tuesday, January 23. Futures and spot data are provided in the files below. The contract size is 12,500,000 yen.
a. Describe the position you decide to enter (long or short).
b. Describe the contract (what month, and what quantity).
c. Document the gain or loss due to marking to market every day that your position is open.
d. What is the total cost in US$ after you have closed out your futures positions, and made your payment?
e. What would have been the total cost in US$, if you had not hedged? Did you benefit from hedging?
f. Repeat steps a) - e) assuming that you expect a payment of 900,000 British pounds on close of business day, Friday, January 26. Assume that you enter into the futures position at the close of day on Tuesday, January 23. Futures and spot data are provided in the file. The contract size is 62,500 British pounds.
Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany