A U.S. corporation has a yen-denominated loan it must repay in 6 months. A long position in yen futures could help offset the corporation's foreign exchange risk.

Question

Quizplus · Accepted Answer

By taking a long position in yen futures, the U.S. corporation can potentially offset the foreign exchange risk of the yen-denominated loan by locking in a favorable exchange rate for the future repayment. This provides a hedge against possible appreciation of the yen against the U.S. dollar, which would increase the cost of the loan repayment for the corporation in dollar terms.

A US Corporation Has a Yen-Denominated Loan It Must Repay in in 6