Problem 1:
Jim Herman is the treasurer of the midsized corporation, Veblen International. The firm manufactures various plastic components used in the computer hardware industry. When the firm opened up, it initially did business in the Midwest region of the United States but now sells its components to customers in other countries. Mr. Herman request that you report and discuss some issues relating to futures contracts, which might be used in the future by the firm to hedge currency risk and interest rate risk. Some of the issues he needs to know more about include the following:
* possible benefits to the firm in using the futures markets
* functions and importance of forward markets
* concept of daily settlement
* regulatory responsibilities of the National Futures Association and the Commodity Futures Trading Commission
Problem 2:
Mr. Herman was enlightened by the information you provided on risk reduction, futures, and forwards contracts but would like to learn if there are alternative methods available for dealing with currency risks. He requests that you research material from the Library and/or the Internet to construct a memo on the differences between taking a long position in a futures contract and taking a short position in a futures contract. Also, give an example of a business scenario in which it would be appropriate to use each of the contracts. If you were going to receive 100,000 Japanese yen in 6 months and the current exchange rate was 10 yen equals 1 U.S. dollar, how many yen would you sell or buy in the forward market? Be sure to cite all references using the appropriate format.