Assignment:
In 1985, Japan Airlines (JAL) bought $3 billion of foreign exchange contracts 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 over $1 billion in cumulative foreign exchange losses on that deal.
a. What was the likely 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?
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.