Disney will receive royalties in Yen. Disney has decided to enter in a short position future...

Disney will receive royalties in Yen. Disney has decided to enter in a short position future contract on Monday morning in order to hedge the risk. Strike price is $0.000124/¥. Future ends at the end of Wednesday (Contract size is ¥12.5m)
a. Calculate the daily profits and losses if the spot rates are: Monday $0.00011/¥, Tuesday $0.00013 /¥ and Wednesday $0.00017/¥.
b. Do the daily settlement (account) if performance bond is $300 and maintenance performance bond $150.
c. Disney has also the chance to sign a forward contract with JP Morgan to exchange Yens at 0.00013$/Yen at the same maturity date of the future. What option is better for Disney: futures or forward?

Solutions

Expert Solution

Use a spreadsheet for the ease in computations. Enter the values and the formulas in the spreadsheet as shown in the image below.

The obtained result is provided below.

jeff jeffy answered 1 year ago

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