The Long-Term Hedge Dilemma St. Louis, Inc., which relies on exporting, denominates its exports in pesos and receives pesos every month. It expects the peso to weaken over time. St. Louis recognizes the limitations of monthly hedging. It also recognizes that it could eliminate its transaction exposure by denominating its exports in dollars, but it would still be subject to economic exposure. The long-term hedging techniques have limitations, as the firm does not know how many pesos it will receive in the future, so it would have difficulty even if a long-term hedging method were available. How can this business realistically reduce its exposure over the long term?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 11, Problem 29QA
Textbook Problem

The Long-Term Hedge Dilemma St. Louis, Inc., which relies on exporting, denominates its exports in pesos and receives pesos every month. It expects the peso to weaken over time. St. Louis recognizes the limitations of monthly hedging. It also recognizes that it could eliminate its transaction exposure by denominating its exports in dollars, but it would still be subject to economic exposure. The long-term hedging techniques have limitations, as the firm does not know how many pesos it will receive in the future, so it would have difficulty even if a long-term hedging method were available. How can this business realistically reduce its exposure over the long term?

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