foreign exchange contracts at ¥180/$1 – Best Writing Service

1 answer below » In 1985, Japan Airlines (JAL) bought $3 billion of at ¥180/$1 over 11 years to hedge its purchases of U.S. aircraft. By 1994, with the yen at about ¥100/$1, JAL had incurred more than $1 billion in cumulative exchange losses on that deal. a. What was the economic rationale behind JAL’s hedges? b. Did JAL’s forward contracts constitute an economic hedge? That is, is it likely that JAL’s losses on its forward contracts were offset by currency gains on its operations?
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