The XYZ company is a US based MNC & deals with various financial instruments as its core business activity. Among its various courses of action, the firm deals with financial derivatives (like forward, future, options etc) & acts as hedger, arbitrager and speculator as well. To be competitive in the market, it has to observe and analyze different economic scenarios in different places/countries and formulate the strategy accordingly to nurture the available business opportunity. With this reference, assuming your team is one of the core business teams of the XYZ Company & based on your understanding of subject matter that you have learned in this course, kindly respond & answer to following different scenarios: Scenario 1: How can currency futures be used by the XYZ Company as an arbitrageur & as a speculator? Scenario 2: Forward versus Currency Option Contracts 1) What are the advantages and disadvantages to the XYZ Company if it uses currency options on euros rather than a forward contract on euros to hedge its exposure in euros? 2) Explain why an MNC like the XYZ Company use forward contracts to hedge committed transactions and use currency options to hedge contracts that are anticipated but not committed. 3) Why might forward contracts be advantageous for committed transactions, and currency options be advantageous for anticipated transactions?
The XYZ company is a US based MNC & deals with various financial instruments as its core business activity. Among its various courses of action, the firm deals with financial derivatives (like forward, future, options etc) & acts as hedger, arbitrager and speculator as well. To be competitive in the market, it has to observe and analyze different economic scenarios in different places/countries and formulate the strategy accordingly to nurture the available business opportunity.
With this reference, assuming your team is one of the core business teams of the XYZ Company & based on your understanding of subject matter that you have learned in this course, kindly respond & answer to following different scenarios:
Scenario 1: How can currency futures be used by the XYZ Company as an arbitrageur & as a speculator?
Scenario 2: Forward versus Currency Option Contracts
1) What are the advantages and disadvantages to the XYZ Company if it uses currency options on euros rather than a forward contract on euros to hedge its exposure in euros?
2) Explain why an MNC like the XYZ Company use forward contracts to hedge committed transactions and use currency options to hedge contracts that are anticipated but not committed.
3) Why might forward contracts be advantageous for committed transactions, and currency options
be advantageous for anticipated transactions?
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