Question Details

Assume that the firm shares the market consensus 


1. Assume there are speculators who attempt to capitalize on their expectation of the yen-
movement over the two months between the order and delivery dates by either buying or selling
yen futures now and buying or selling yen at the future spot rate. Given this information, what is
the expectation on the order date of the yen spot rate by the delivery date? (Your answer should
consist of one number.)

2. Assume that the firm shares the market consensus of the future yen spot rate. Given this
expectation and given that the firm makes a decision (i.e., option, futures contract, remain
unhedged) purely on a cost basis, what would be its optimal choice?



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