Currency Appraisal Essay

a) A fall in the value of the Australian dollar (AUD) against the U.S. dollar (USD) benefit Billabong in two folds, strengthened price competitiveness and translation advantage. Firstly, the Americas segment accounts for about 50% of Billabong’s sales revenue in 2008 and 2009. (Appx.1) In case of depreciation of AUD against USD, the price of imported surfwear to the U.S. in terms of USD will decrease. The US importers demand more for Billabong’s products. The sales increases from the strengthened price competitiveness. Secondly, when Billabong received payment from the importers, it will translated back into AUD for use in Australia. As AUD depreciate, the receipt in USD can be translated into more AUD than before, bringing

The Balance of Payments in India mainly relies on services exports, remittances and the course capital flows, both foreign direct investments (FDI) and FII. It is very essential that all market participants, such as banks and other intermediaries be provided with the wherewithal so that they can undertake a risk management in a way that is scientific. One of the ways to access domestic, foreign exchange markets is to hedge on the underlying foreign exchange exposures. In addition, the facilities that are available as the booking of forward contracts were included in the domestic forex market in order to evolve and acquire volumes and depth (Sumanth, 2012). Some of the newer hedging instruments have put in place swaps and options in the

2) Minimize the cost associated with the foreign exchange risk management strategy, i.e. the management and hedging costs

Hedging is a significant measure of financial risk management. Since the 1970s, the increasing number of powerful companies started to control the risk of the exchange rate, the interest rate and commodity by using financial derivatives. ISDA (2013) based on the Global 500 Annual Report 2012 survey found that 88 percent of companies use foreign exchange derivatives. Modigliani & Miller (1958) believed that if the financial markets were under perfect conditions, for instance, there was no agency costs, asymmetric information, taxes and transaction costs, hedging would not increase the company 's value because investors can hedge by themselves. However, a large number of practical studies have shown that hedging is beneficial

The current 50% hedging policy executed at the fund level has served well for OTPP for the past ten years, contributing to the fund’s positive returns. The FX Hedge Program not only has minimized the downside risk, but has also limited the upside potential. If OTPP decided not to implement a hedging program in 1996, they would have lost about $983 million CAD over the ten year period (1995-2005) which is valued at 2% of the portfolio. With the hedging program, OTPP was able to reduce the overall loss to about $469 million CAD, but also limited the gain from the depreciation of the pound.(Exhibit 1) Hedging is an excellent short-term risk minimizing strategy for long term investors, sustaining a continual payout of pensions during volatile times in OTPP’s invested currency markets. Currently, approximately 21% of OTPP’s net assets are exposed to foreign currency risk. Consequently, it is essential that OTPP maintain a risk management program of hedging, as slight currency fluctuations can significantly affect the value of the fund. Similarly to continual renewal of swaps, hedging can be a very expensive risk management strategy.

There are lots of methods to solve the changes in foreign currency and interest rates issue, however, derivative financial instruments are the major tunes Nike enterprise has used to tackle this issue. Despite the fact that this approach does not wipe out comprehensively the risk of foreign exchange, Nike enterprise still utilize it to minimize or delay the negative consequences. Specifically, the derivative financial instruments comprise embedded derivatives, interest rate swap, and foreign exchange forwards and options contracts (Nike annual report, 2014).

The presentation was scheduled for the first week of December 1990. Mr. Pross outlined the use of various derivatives, noting that they differed widely in their ability to reduce risk. If the company was, say, placing a large bid to buy a building abroad, one might prefer to use foreign currency options to hedge the currency risk in the event the deal fell through. He argued, however, that foreign currency futures were best suited to hedge the fluctuations in revenues arising from currency movements. Mr. Pross proposed a plan to hedge currency risk using futures which

X- C. The composition of the optimal international portfolio is identical for all investors of a particular country, whether or not they hedge their risk with currency futures

Since the acceptance of Dozier Industries’ bid, the company CFO has been exploring the methods available to best manage the exchange risk associated with the award payment being dispersed in British Pounds (GBP). He originally considered a forward contract or a spot contract, but is now investigating how currency options could help hedge against uncertain foreign exchange exposure. The CFO needs to decide whether or not options contracts might provide some benefit to hedge the currency risk.

AIFS wants to offset any change in the exchange rates that may adversely affect their profit margins by using currency forward contracts and currency options. These hedging activities work to offset the three types of risk defined above as bottom-line risk, volume risk, and competitive pricing risk. Since these hedging activities must be put in place two years before the actual year of sales, AIFS must decide the proportion and cost

Then, we took into consideration only a fluctuation of the exchange rate. The scenarios that we analyzed covers different positions of the dollar against the euro: weak dollar (USD 1,48/EUR), stable dollar (USD 1,22/EUR) and strong dollar (USD 1,01/EUR). Different coverage of costs with hedging was also introduced in the analysis. The three main policies are of not hedging, 100% hedging with forward contracts and 100% hedging with options.

Moreover, because of the huge worldwide extension of the corporation, which operates in 194 countries, the use of foreign currency derivatives to minimize the earnings volatility would be the subject of later analysis. The report will focus on how Nestlé uses futures and option contracts to hedge its exposure to currency risk, centering our attention in Nestlé Home Currency, the Swiss Franc in relation to the US Dollar (USD/CHF). It will be examined an example of its hedging strategy and the information provided by a contact in the firm.

     In the present day, the world's economy is ever-changing and adjusting. Many different reasons control the reasons for this. The future of currency is something that can only be predicted and is not guaranteed. However, there are many determing factors behind the changes that can take place. Asia and North America are two continents that have economies that have recently changed or are in the midst of change.

Among the most fundamental risks, associated with exchange-traded derivatives, is variable degree of risk. According to Ernst, Koziol, & Schweizer (2011), the transactions in

Great Eastern Toys is a company in Hong Kong that exports a huge percent of its total sales to the North American and European markets and hence is exposed to currency risk. Previously, the company was occupied with expanding their business and the company 's management had never given much attention to currency risk until their recent meeting with their banker. The banker pointed out that the depreciation of the European currencies during the previous two years had resulted in a substantial loss of income. The company 's management was indeed convinced that they should begin to devote more time and manage their currency position. In this report, we are going to explore the different options for Great Eastern Toys to hedge