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 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?