DERIVATIVE CASES CASE STUDY II AMERICAN BARRICK RESOURCES CORPORATION: MANAGING GOLD PRICE RISK Group II - Cohort 5 American Barrick is the largest gold producer in North America. The implementation of the gold-hedging program differentiated the firm from other major gold rivals and improved its reserve and financial strength. In 1995‚ American Barrick ’s latest
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translation risk and the other one is transaction risk. The company’ is looking at different hedging strategies to mitigate the risks and dealing with the matter exceptionally from the company’s policy. In order to that different instruments (options and forward contracts) should be analyzed for different level of hedge
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choose to hedge its Yen royalties cash flows. This can be done by using financial instruments to reduce or even entirely eliminate the impact of exchange rates on the cash flows of the Yen royalties. These financial instruments include for example forward contracts‚ futures contracts‚ swaps and options. Besides reducing the risk and impact of exchange rates and interest rates‚ hedging has more advantages. The first advantage is important for Disney since the appreciating Yen will reduce the US
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Xian-Janssen Pharmaceutical (China) and the Euro How can the Chinese subsidiary of a multinational company both hedge its currency risks and still meet the sales and profitability objectives directed by leadership? Paul Young was the financial controller of Xian-Janssen Pharmaceutical Ltd. (XJP)‚ the Chinese subsidiary of the U.S.-based multinational‚ Johnson & Johnson. Paul was preparing for a meeting with his CEO‚ Christian Velmer‚ which would focus on the business plan for the coming
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following risk management tools would generally have the least basis risk? a. option contract b. futures contract c. forward contract d. swap contract e. insurance contract Answer E 6 Which of the following is TRUE? a. futures contracts tend to by standardized‚ while forward contracts tend to be customized. b. futures contracts tend to by customized‚ while forward contracts tend to be standardized. Answer A 7 Which of the following derivative instruments provides the owner of the
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POINT/COUNTER-POINT Should MNCs Use Forward Rates to Estimate Dollar Cash Flows of Foreign Projects? POINT: Yes. An MNC’s parent should use the forward rate for each year in which it will receive net cash flows in a foreign currency. The forward rate is market-determined and serves as a useful forecast for future years. COUNTER-POINT: No. An MNC should use its own forecasts for each year in which it will receive net cash flows in a foreign currency. If the forward rates for future
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Japanese Yen is 85 Yen equals 1 US $‚ and the annual Yen interest rate on fixed rate one-year deposits of Yen is 0.25% and for US$ is 1.5%‚ what is the nine-month forward rate for one dollar in terms of Yen? Assuming the same interest rates‚ what is the 18-month forward rate for one Yen in dollars? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates‚ in this case will the Yen get stronger or weaker against the dollar? What does this indicate about the market’s
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AFM 322 Hedging Currency Risk at AIFS 1. Case Synopsis Christopher Archer-Lock and Becky Tabaczynski both work for American Institute for Foreign Study (“AIFS”). Archer-Lock is the controller of AIFS and Tabaczynski is the CFO of AIFS’s high school travel division ACIS. AIFS a student exchange organization that organizes educational and cultural exchange programs throughout the world. Founded in the U.S. in 1964‚ AIFS has annual revenues of close to $200 million and sent more than 50‚000 students
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from its Newark‚ New Jersey‚ manufacturing facility. As U.S. manufacturing continued to migrate overseas‚ however‚ Baker would be under intense pressure to find new markets‚ which would inevitably lead to international sales. Doug Baker was looking forward to this meeting. The recent sale to Novo‚ while modest in size at 1‚210 gallons‚ had been a significant financial boost to Baker Adhesives. The order had used up some raw-materials inventory that Baker had considered reselling at a significant loss
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with hope.” – Barack Obama. This quote by Barack Obama‚ relates to the movie Pay It Forward by Mimi Leder made in 2000‚ in the way that Trevor did not wait for good to happen to him‚ he just went out and started helping out. The little boy Trevor wants to start a movement called pay it forward‚ were one person helps another person and that one person has to help out three other people and so forth. Paying it forward could actually work in real life‚ but we need someone to actually start the movement
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