Beech Industries is a U.S. company that sells shoes to Japanese retailers. Beech Industries just signed a contract to sell 1,000 pairs of shoes to Yakata Inc. The total price for these shoes is ¥200,000. The shoes will be delivered today but Beech Industries won't receive payment for 6 months. The current spot rate is ¥127/$ and the 6-month forward rate is ¥128/$. Marcus Duncan, the treasurer at Beech Industries, expects that in 6 months the spot rate will ¥131/$. Based on the information given Beech Industries is most likely to

Question

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Beech Industries will most likely enter into a forward contract that locks them into the rate of ¥128/$. They will do this because they expect the Yen to depreciate more than the rate of the forward contract. The forward contract will allow them to convert Yen into dollars at a rate ¥128/$, while if they remain unhedged and their expectations are realized they will have to convert the ¥200,000 into dollars at a rate of ¥131/$. Entering in the forward contract will give them $1,562.50 in 6 months but if they are unhedged and their expectations about exchange rates are realized they will only have $1,526.72.

Beech Industries Is a U