Blades, Inc. Case Study Analysis Paper

This case shows us that apart from transaction, translation and economic exposure to currency risk, firms also have the very real strategic impact on their competitive position from competitive exposure. Apart from GM’s exposure to the yen which is reflected in their financial statements, their competitive position vis-à-vis Japanese manufacturers is affected by a potentially declining yen. This is because a declining yen reduces the Japanese manufacturers’ $ cost, enabling them to pass on some of the benefit to US customers and thus taking some of GM’s market share. This will impact GM’s top and bottom line. However, GM has a difficult decision regarding managing this risk.

1. Should Disney hedge its yen royalty cash flow? Why or why not? If so, how much should be hedged and over what time period?

Options strategies share a similar defect with forward sales. That is the weakness of getting the maximum profits that are available when the price goes up or indeed has the potential to rise. “By adjusting the exercise prices and ratios of puts and calls, American Barrick could determine the degree to which it chose to participate in gold price sales”. However, options contracts are usually not longer than 5 years and only contracts with maturities under 2 years have high liquidity. Thus, the time spread of it is far shorter than the 20 years of expected production currently in reserve. Taking these factors into consideration, we think options contracts are good for American Barrick to hedge risk in short-term period.

Mr. Lee and the other executives expect to generate a higher profit from hedging since they have majority of their personal wealth invested into the firm. The focus of any hedging program should always be to minimize the firm’s risk of loss, but that does not mean the they will

The current state of the U.S. macro economy is made up of a plethora of highly involved processes. I am going to attempt to explain some simple terms and concepts focused on international trade and foreign exchange rates.

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.

2) Interest rate parity (how exchange rate is determined by the flows of capital) and

The expansion of new markets – foreign exchange and capital markets are linked globally. They operate 24 hours a day with dealings any where in the world possible in real time. Financial deregulation and the floating of the Australian dollar since 1983 intensified the impact of globalisation on the Australian economy.

General Motors Corporation, the world’s largest automaker, has an extensive global outreach, which places the firm in competition with automakers worldwide, and subjects itself to significant exchange rate exposure. In particular, despite most of its revenues and production being derived from North America, depreciating yen rates pose problems for the firm indirectly through economic exposure. While GM possesses ‘passive’ hedging strategies for balance sheet and income statement exposures, management has not yet quantified or recognized solutions to possible losses from the indirect competitive exposure it now shared with Japanese automakers in the U.S import

i) Given that Dozier industries does nothing to hedge this risk, assuming that spot exchange rate remains the same as on Jan 14,1986 levels,

But, even though the possibility of winning exists, the company is exposed to a greater risk if it does not hedge. Moreover, the policy of the company is to ensure against the risk, not to speculate on the foreign exchange market.

Nevertheless, the company Aspen needs to hedge its account. Indeed, they are in the case of economic distress: they care about their image (they need to show their robustness to their customers), they want to show the stability of the company (smoothing the account figures rather than the cash flow), and even if they need cash, they want to avoid any impact to the clients.

Most firms hedge at least some of their risks. Hedging can take two basic forms—namely, natural hedging and hedging by means of derivative instruments. The use of derivatives as hedges has expanded greatly in recent years.

In the past the market risk was hedged by shorting or short-selling representative shares of the market index In the past the market riskunder was The alternative hedged by shorting hedging the consideration was or shortselling representativehelp of put market risk with the shares of the market the market index options on index

If the new spot rate is above 1.0847(1.06470.02), the option is out-of-the money and it dominates the money market hedge (because when the euro is sufficiently strong, then the free disposal (the right to throw away the put) of the out-of-the money option becomes very valuable). The new spot rate is so attractive that you can pay for the (unused) put option and still do better than the money market forward rate. e) You learn that UBS Warburg expects the European currency to hit 1.15 by the end of the year. You strongly believe in UBS Warburgs forecast, what hedging plan would work best for you 3 Given that you strongly believe in the euro appreciation beyond 1.0847 USD/EUR and you have a receivable in six months, the option hedge would be the most profitable of the plans according to your expectations.  QUESTION 3 - 15 points In the US Semiconductor (USS) case, the group controllers of USS suggested that for the translation of a new UK