HEDGING YEN USING FUTURE CONTRACT

Facts of the case:-

(a) A USA company is expecting payment of 50 Million Yen from Japan at the
end of March.
(b) In order to cover the risk involved, the company shorts 4
(contracts)September Yen future contracts on March 01.
(c) One contract is for delivery of 12.5 million Yen.
(d) The future price on 01 March is .7800 USD per 100 yen.
(e) The company receives the 50 m in end March and therefore closes out the 4
future contracts on 29 March.
(f) The company is asked by the brokers to maintain the following:-
(i) Initial Margin- $ 1 million per contract.
(ii) Maintaince Margin- $ 7.5 lakh per contract.

Q 1.Complete the Customers Mark to Market Account maintained by the broker

for this customer using following details for the month of March only-
:-

DAY FUTURE PRICE

MARCH 03 0.7670
MARCH 04 0.7220
MARCH 05 0.7810
MARCH 06 0.7650
MARCH 07 0.7450

MARCH 10 0.7560
MARCH 11 0.7110
MARCH 12 0.7290
MARCH 13 0.8000
MARCH 14 0.7980
MARCH 17 0.7810
MARCH 18 0.7780
MARCH 19 0.7890
MARCH 20 0.7980
MARCH 21 0.7800
MARCH 22 0.7810
MARCH 25 0.7780
MARCH 26 0.7970
MARCH 27 0.7910
MARCH 29 0.7990
Q 2. The spot price on 29 March is 0.7990.Compare and analyse the benefits of
Hedging/Spot /future trading in this case.