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Question: you expect to receive 40000000 japanese yen on close of...

Question details
  1. You expect to receive 40,000,000 Japanese Yen on close of business day, Friday, January 18th. You decide to hedge your risk with the futures contracts. Assume you that you enter into the futures position at a close of day on Tuesday, January 15th. Futures and spot data are provided in the file HW1_data.doc. Contract size is 12,500,000 yen.
    1. Describe the position you decide to enter (long or short).
    1. Describe the contract (what month, and what quantity).
    1. Document the gain or loss due to marking to market every day that your position is open.
    1. What is the total cost in US$ after you have closed out your futures positions, and made your payment?
    1. What would have been the total cost in US$, if you had not hedged? Did you benefit from hedging?
  2. f.What was the effective cost per JPY
    1. What would have been the total cost in US$ if you could have bought (or sold) a contract for exactly the amount you wanted to hedge (40,000,000 Yen)?
    1. Identify problems with your hedge. When do you think it is useful to hedge using futures and when it is not?

Japanese Yen Futures Data

Japanese Yen Data

Daily Settlements for Japanese Yen Future (FINAL)Trade Date: Wednesday, 01/16/2019

Month

Open

High

Low

Last

Change

Settle

Estimated Volume

Prior Day Open Interest

FEB 19

92455

92500

91850

91850

-290

92060

525

787

MAR 19

92480

92730

92025

92115B

-290

92265

103,346

225,891

APR 19

92760

92860B

92340A

92340A

-290

92500

1,745

1,451

MAY 19

-

93080B

92560A

92560A

-290

92710

0

28

JUN 19

93300

93345B

92750

92750

-295

92970

36

901

SEP 19

-

-

-

-

-300

93690

0

110

Settlements for Japanese Yen Futures (FINAL)Trade Date: Friday, 01/18/2019

Month

Open

High

Low

Last

Change

Settle

Estimated Volume

Prior Day Open Interest

FEB 19

91730

91820B

91240

91320B

-445

91300

403

675

MAR 19

91980

92115

91405

91500

-445

91500

111,197

217,141

APR 19

91930

92240B

91720A

91740B

-445

91730

358

563

MAY 19

-

92460B

91940A

91960B

-450

91940

0

148

JUN 19

92595

92700B

92190A

92225

-450

92200

169

1,012

SEP 19

-

-

-

-

-440

92920

0

110

Spot data:

Jul.Day

YYYY/MM/DD

Wdy

USD/JPY

2458499

2019/01/15

Tue

0.0092115

2458500

2019/01/16

Wed

0.0091863

2458501

2019/01/17

Thu

0.0091771

2458502

2019/01/18

Fri

0.0091176

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