U.S. based company wanted to purchase supplies from Japanese supplie

Jun 21st, 2015
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Blades, Inc., a U.S. based company wanted to purchase supplies from Japanese supplier with payment of 12.5 million yen payable on the delivery date. The order has been made two months ahead of the delivery date. It has two choices. i. Blades inc. will purchase two call options contract or ii. It will purchase one future contract.

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Introduction Blades, Inc., a U.S. based company wanted to purchase supplies from Japanese supplier with payment of 12.5 million yen payable on the delivery date. The order has been made two months ahead of the delivery date. It has two choices. i. Blades inc. will purchase two call options contract or ii. It will purchase one future contract. Call Option means an agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. In the commodity markets, it is considered as a less risky trade. When you buy a call option, your risk is limited to the price you pay for the call option (premium) plus commissions and fees. Futures contract means a legally binding arrangement where one party commits to buying an asset from another party on a specified date in the future, but at a price agreed previously. The counterparty is obliged to sell the asset at the agreed price and on the agreed date. Because the price is agreed at the outset the seller (buyer) is protected from a fall (rise) in the price of the underlying asset in the intervening time period. Initially developed to protect agricultural producers from unforeseen market fluctuations - hedging. Most traders do not exercise call options (or convert into a futures contract), instead they will close a call option sometime before it expires. So if Blades Inc. chooses two call options they need to pay 6250000 yen for e

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