Assume a Japanese firm invoices exports to the U.S. in U.S. dollars. Assume that the forward rate and spot rate of the Japanese yen are equal. If the Japanese firm expects the U.S. dollar to ____ against the yen, it would likely wish to hedge. It could hedge by ____ dollars forward.

Question

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If the Japanese firm expects the U.S. dollar to depreciate against the yen, it would want to hedge against receiving fewer yen for each dollar. By selling dollars forward, the firm locks in the current exchange rate, protecting itself from the potential depreciation of the dollar.

Assume a Japanese Firm Invoices Exports to the U