A us company has bought jpyen12500000 worth of equipment, Ask an Expert

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A U.S. company has bought JP¥12,500,000 worth of equipment from a Japanese maker and the amount will be due in December. The financial manager decided to use the yen futures contract (size of ¥12,500,000) to hedge the currency risk. (Hedging, Marked-to-market)

a. Should the company purchase or sell a December yen futures contract? Why?

b. Suppose the company purchased or sold the December yen futures contract today from (a), which settles at $.010624/¥. The next day the same contract settles at $.010690/¥. Should the company’s margin account be credited or debited? Why? By how much should the account be credited or debited?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92715155

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