Forward hedge problem. US firm XYZ has a ¥15,000,000 account payable due in 30 days. The firm decides to hedge half of this amount with a forward contract and leave the other half unhedged. The current exchange rate is ¥105/$. The forward exchange rate is ¥103/$. At the time of payment (30 days), the exchange rate is ¥108/$. How does the 50% hedged position results compare with a 0% hedged position and a 100% hedged position?
What will be an ideal response?
50% Hedged Position:
¥7,500,000 * $1/¥103 = $72,815
50% Unhedged Position
¥7,500,000 * $1/¥108 = $69,444
Total = $72,815 + $69,444 = $142,259
0% Hedged Position
¥15,000,000 * $1/¥108 = $138,889.
100% Hedged Position
¥15,000,000 * $1/¥103 = $145,631
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