In light of the currency risk faced by Walt Disney Company (DIS), which generates income globally, including a significant portion from Tokyo Disney, the company foresees receiving *500 million from its Tokyo operations in three months and another *500 million in six months. To safeguard against unfavorable exchange rate fluctuations, Disney aims to secure the exchange rates for these cash flows. The investment banker has provided information that the three-month forward $/¥ rate is 0.009123. Now, let's explore the following: a) What hedging strategy will Disney employ, and how much of the home currency will the company receive in three months? b) Additionally, the investment banker is offering a six-month forward contract at a rate of 0.009178 $/*. Should the firm consider this opportunity, and what would be the revenue in home currency in six months? c) Suppose Toyota is expecting two cash flows in dollars from its US operations, one in three months and the other in six months, and has access to the same forward contracts. What should be Toyota's hedging strategy in this scenario?
In light of the currency risk faced by Walt Disney Company (DIS), which generates income globally, including a significant portion from Tokyo Disney, the company foresees receiving *500 million from its Tokyo operations in three months and another *500 million in six months. To safeguard against unfavorable exchange rate fluctuations, Disney aims to secure the exchange rates for these cash flows.
The investment banker has provided information that the three-month forward $/¥ rate is 0.009123. Now, let's explore the following:
a) What hedging strategy will Disney employ, and how much of the home currency will the company receive in three months? b) Additionally, the investment banker is offering a six-month forward contract at a rate of 0.009178 $/*. Should the firm consider this opportunity, and what would be the revenue in home currency in six months? c) Suppose Toyota is expecting two cash flows in dollars from its US operations, one in three months and the other in six months, and has access to the same forward contracts. What should be Toyota's hedging strategy in this scenario?
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