Question Details

Will the choice you made as to the optimal hedging strategy 


1. Will the choice you made as to the optimal hedging strategy in question 4 definitely turn out to be
the lowest-cost alternative in terms of actual costs incurred? Why or why not?

2. Now assume that you have determined that the historical standard deviation of the yen is about
$0.0005. Based on your assessment, you believe it is highly unlikely that the future spot rate will
be more than two standard deviations above the expected spot rate by the delivery date. Also
assume that the futures price remains at its current level of $0.006912. Based on this expectation
of the future spot rate, what is the optimal hedge for the firm?



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