If you have entered into a currency futures hedge for the Japanese yen in connection with buying Japanese equipment,if the yen goes from 110 yen/$1 to 100 yen/$1,you will lose in the spot market but have an offsetting gain in the futures market.

Question

Quizplus · Accepted Answer

If the yen goes from 110 yen/$1 to 100 yen/$1, it means that the yen is weakening against the dollar. As a result, if you are buying Japanese equipment, your cost will increase in the spot market. However, if you have entered into a currency futures hedge for the Japanese yen, you will have an offsetting gain in the futures market. This is because the futures contract would have been priced based on the initial exchange rate of 110 yen/$1, and as the exchange rate moves against you, the value of the futures contract would increase, providing you with a gain to offset the loss in the spot market. Therefore, option A is correct.

If You Have Entered into a Currency Futures Hedge for the Japanese