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

Question 33

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A Japanese IMPORTER has a €1,000,000 PAYABLE due in one year. A Japanese IMPORTER has a €1,000,000 PAYABLE due in one year. The one-year risk free rates are i<sub>$</sub> = 4.03%; i<sub>€</sub> = 6.05%; and i<sub>¥</sub> = 1%. Detail a strategy using forward contract that will hedge his exchange rate risk. Have an estimate of how many contracts of what type. A) Go short in 12 yen forward contracts. Go long in 16 euro contracts. B) Go long in 12 yen forward contracts. Go short in 16 euro contracts. C) Go short in 16 yen forward contracts. Go long in 12 euro contracts. D) None of the above The one-year risk free rates are i$ = 4.03%; i€ = 6.05%; and i¥ = 1%. Detail a strategy using forward contract that will hedge his exchange rate risk. Have an estimate of how many contracts of what type.


A) Go short in 12 yen forward contracts. Go long in 16 euro contracts.
B) Go long in 12 yen forward contracts. Go short in 16 euro contracts.
C) Go short in 16 yen forward contracts. Go long in 12 euro contracts.
D) None of the above

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