Assume that it is now 30 June. KYT Inc is a company located in the USA that has a contract to purchase goods from Japan in two months time on 1 September. The payment is to be made in yen and will total 140 million yen.

The managing director of KYT Inc wishes to protect the contract against adverse movements in foreign exchange rates and is considering the use of currency futures. The following data are available.

Spot foreign exchange rate

Yen/$ 128.15

Yen currency futures contracts on SIMEX (Singapore Monetary Exchange)

Contract size 12,500,000 yen, contract prices are $US per yen.

Contract prices: September 0.007985

December 0.008250

Assume that futures contracts mature at the end of the month.

Should futures contracts be bought or sold to hedge this position?