Question

The Dutch manufacturer Cloghpper has the following JPY commitments:

i. A/R of JPY 1,000,000 for thirty days.

ii. A/R of JPY 500000 for ninety days.

ii. Sales contract (twelve months)of JPY 30,000,000

iv. A forward sales contract of JPY 500,000 for ninety days.

v. Adeposit that at maturity, in three months, pays JPY 500000

vi. A loan for which Cloghopper will owe JPY 8,000,000 in six months.

vii. A/P of JPY 1,000,000 for thirty days.

viii. Aforward sales contract for JPY 10,000,000 for twelve months.

ix. A/P of JPY 3,000,000 for six months.

Required:

1. Compute cleoghopper's net exposure for each maturity.

2. Explain how would cloghpper hedge the exposure for each maturity of the forward market.

3. Assume that the interest rate is 5% (compouded per annum) for all maturities and that this will remain 5% with certainty for the next twelve months. Also ignore bid-ask spreads in the money market. How would the company hedge its exposure in the spot market and the JPY money market?

   Describe all money-market transactions in datail.