As an importer of grain into Japan from the United States, you have agreed to pay $377,287 in 90 days after you receive your grain. You face the follow- ing exchange rates and interest rates: spot rate, ¥106.35 >$; 90-day forward rate, ¥106.02 >$; 90- day USD interest rate, 3.25% p.a.; and 90-day JPY interest rate, 1.9375% p.a.
a. Describe the nature and extent of your transaction foreign exchange risk.
b. Explain two ways to hedge the risk.
c. Which of the alternatives in part b is superior?