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

question 29

Multiple Choice

A Japanese IMPORTER has a €1,000,000 PAYABLE due in one year. The one-year risk free rates are i_$ = 4.03%; i_€ = 6.05%; and i_¥ = 1%.Detail a strategy using forward contracts 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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