Explain the outcomes of the strategy

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Reference no: EM132001617

Question: A mining company located in Australia has entered into a contract to export coal to Japan with delivery in 90 days. The contract is denominated in the Japanese Yen (JPY) and is valued at JPY500 million. The spot exchange rate is JPY/AUD0.0120. The company's foreign exchange advisors believe the JPY will be JPY/AUD0.0105 in 90 days. Assume that there is no basis risk between the futures market and the spot FX markets. Set up a hedging strategy using the futures market. Show your calculations. Explain the outcomes of the strategy. Assume that JPY futures have a face value of JPY100 000 per contract.

Reference no: EM132001617

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