A Japanese IMPORTER has a $1,250,000 PAYABLE due in one year. $$\begin{array} { l l l }
\hline \text { Spot exchange rate } & 1 \text {-year Forward Rate } & \text { Contract size } \
\hline \$ 1.00 = ¥ 100 & \$ 1.00 = ¥ 120 & ¥ 12,500,000 \
\hline
\end{array}$$ Detail a strategy using forward contracts that will hedge his exchange rate risk.

Question

A Japanese IMPORTER has a $1,250,000 PAYABLE due in one year. $$\begin{array} { l l l } 
\hline \text { Spot exchange rate } & 1 \text {-year Forward Rate } & \text { Contract size } \
\hline \$ 1.00 = ¥ 100 & \$ 1.00 = ¥ 120 & ¥ 12,500,000 \
\hline
\end{array}$$ Detail a strategy using forward contracts that will hedge his exchange rate risk.

Quizplus · Accepted Answer

The Answer of A Japanese IMPORTER has a $1,250,000 PAYABLE due in one year. $$\begin{array} { l l l } 
\hline \text { Spot exchange rate } & 1 \text {-year Forward Rate } & \text { Contract size } \
\hline \$ 1.00 = ¥ 100 & \$ 1.00 = ¥ 120 & ¥ 12,500,000 \
\hline
\end{array}$$ Detail a strategy using forward contracts that will hedge his exchange rate risk.

A Japanese IMPORTER Has a $1,250,000 PAYABLE Due in One