A U.S. company has bought JP¥12,500,000 worth of equipment from a Japanese maker and the amount will be due in December. The financial manager decided to use the yen futures contract (size of ¥12,500,000) to hedge the currency risk. (Hedging, Marked-to-market)
a. Should the company purchase or sell a December yen futures contract? Why?
b. Suppose the company purchased or sold the December yen futures contract today from (a), which settles at $.010624/¥. The next day the same contract settles at $.010690/¥. Should the company’s margin account be credited or debited? Why? By how much should the account be credited or debited?