1. Hedging Transaction Exposure
Case 2
Hedging Transaction Exposure

2. Question 1 Question a: Range worst/best case scenario
+/- 10%: [$2,244,600 - $2,743,400]
Question a: Normal distribution
Interval (98% C.I): [$2,313,179 - $2,691,503]
VaR (99%)-mean: -$180,820
T-5mo: -$381,274
Question a: A simulation
Interval: [$2,345,083 - $2,723,757]

3. Question 2 Number of contracts using PHLX options
Total JPY per Options Contract: JPY 12,500,000
Total Contracts to cover our position: 16 options contracts
Using the JPY June Call Option:

4. Question 2
Using the JPY June Call Option:

5. Question 2
Using the JPY June Call Option:

6. Question 3 Using OTC option – Not recommended Less liquid
Same strike prices but higher premiums
Contracts expire in March
Less regulated

7. Question 4
Options vs. Forward

8. Question 5 We would go with the JPY June 0.008 Call:
Interval (98% C.I): [$2,313,179 - $2,691,503]
Potential for cost savings using the call option

9. PART 2, Question 1
This is the implied 3 month forward rate

10. Question 2 This is the 6 month forward rate
Effective total cost is $2,424,370.2

11. Question 3
The effective total cost (in USD) using 6-month Futures: $2,426,157.24

12. Question 4
The effective total cost (in USD) for each JPY June Option given different strike prices:

13. Left Position Open: THANK YOU!
Purchase the parts at the May 6th exchange rate: USD/JPY
Total cost: $2,008,000
THANK YOU!
QUESTIONS?