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On July 2, 1997, a a company is worry about the value of its Yen income over the next few weeks and makes a decision to hedge its risk by taking a position in the futures market. Right now, a futures contract written on the Yen with a maturity of November 1, 1997 has a price of $7.8741/Yen. This contract’s size is 500 Yen per contract. In order to provide sufficient protection, the exporter decides that they need to take a position in 100 contracts.

Should the exporter take a long or short position in the Yen futures contract?

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When I consider, I say “short position” but I am not sure. Please tell me and share with me your opinions

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    $\begingroup$ I can see from your question history that you are bombing the site with your homework. $\endgroup$
    – chrisaycock
    Commented May 21, 2020 at 21:57
  • $\begingroup$ No no, right now, classes are closed as you know, so these are not homework. These are a Self-studying question’s from a textbook in order to prepare myself for a interview of a graduate program for next year. So I am trying to learn topics by myself. @chrisaycock $\endgroup$
    – 1190
    Commented May 21, 2020 at 22:13

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A short position is to sell futures

A long position is to buy futures.

If your worried that the price of Yen will fall the best strategy would be one that counters your current position.

If you buy futures you are obligated to buy underlying asset at set price. Helps if currency fluctuates. Sell futures obligates to sell at a set price.

If belief is that currency will fall, the most profitable situation would be like you say to take a short position, if yen drops below the current price, it is a good profit for seller.

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  • $\begingroup$ Wow, thanks for your great explanation. But I cannot understand that “If your worried that the price of Yen will fall the best strategy would be one that counters your current position.“ that is, you mean that the best strategy is short position for me? What you mean? $\endgroup$
    – 1190
    Commented May 21, 2020 at 22:42
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    $\begingroup$ Hi basically I’m saying that depending on what you believe will happen, so for instance you believe the yen will rise in value and you want to lower the costs in yen, then you would buy futures. If in contrast you believe yen will fall and want to make a profit off of fall, then sell futures. You are right in this instance - to short $\endgroup$
    – JazKaz
    Commented May 21, 2020 at 22:45
  • $\begingroup$ Thank you so much again:) $\endgroup$
    – 1190
    Commented May 21, 2020 at 23:07
  • $\begingroup$ can you please help me to do this question? I will be glad. Thanks a lot $\endgroup$
    – 1190
    Commented May 22, 2020 at 17:45
  • $\begingroup$ quant.stackexchange.com/questions/54273/… I add the link of my question. $\endgroup$
    – 1190
    Commented May 22, 2020 at 17:46

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