Snow White Manufacturing makes snowmobiles, some of which it sells to Japan for recreation in the wilderness of the northern islands. Snow White is expecting a payment of ¥9 million in six months.
a. Draw a time line illustrating the transaction.
b. Draw a payoff profile with dollars-per-yen on the axes.
c. Suppose Snow White takes out a forward contract to hedge this transaction. Describe this contract.
d. Describe the advantages/disadvantages to Snow White if Snow White takes out a futures contract instead of a forward contract.