recommendation to Cain in regard to hedging her position. Should she hedge? Why or why not? If she should hedge‚ which approach should she use? If you decide to use options‚ specify and justify the strike price. First and foremost‚ neither of the strategies will provide a perfect hedge. The currencies are correct‚ but the date to expiration is not. This will result in some currency risk. Although these strategies will not provide a perfect hedge‚ it is still recommended that Cain uses one of these hedging
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Chapter 9 Mini Case – McDonald’s Corporation’s British Pound Exposure 1. How does the cross currency swap effectively hedge the three primary exposures McDonalds has relative to its British subsidiary. In general‚ cross currency swap is a contract to swap currencies of debt service obligation (Eiteman‚ Stonehill‚ & Moffett‚ p. 245). For example‚ McDonalds needs to swap pound denominated fixed interest rate and adopt floating interest rate from the US headquarter. The need to enter into swap agreement
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using this equation: 10‚000‚000(1.10-1.05)=10‚000‚000(.05)=$500‚000 expected gain (b) If you were the financial manager of Cray Research‚ would you recommend hedging his euro receivable? Why or why not? Cray Research should hedge in this situation. Hedging will allow them to possibly increase the expected dollar by $500‚000 and eliminate exchange risk. (c) Suppose the foreign exchange advisor predicts that the future spot rate will be the same as the forward exchange
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Massachusetts Financial Services (MFS) may characterize their labor market for portfolio managers as a “star system”‚ their labor market certainly does not have a star mentality. Rather than recruit stars‚ they mentor portfolio mangers into becoming stars. MFS promotes a culture of teamwork and collaboration in which talent grows from within. MFS often recruits employees right out of business school as analysts. Analysts are then brought up through the MFS system and trained to become great portfolio
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increase a company’s value. a. True b. False Medium: (24.6) Futures market hedging FP Answer: b MEDIUM 5. The two basic types of hedges involving the futures market are long hedges and short hedges‚ where the words "long" and "short" refer to the maturity of the hedging instrument. For example‚ a long hedge might use Treasury bonds‚ while a short hedge might use 3-month T-bills. a. True b. False Multiple Choice: Conceptual Medium: (24.1) Risk management CP Answer: d
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c) In May 2010‚ should the ECB agree to purchase Greek sovereign debt? Case 2: Foreign Ownership of US Treasury Securities a) Why is foreign ownership of US Treasury securities rising? It is more interesting for foreigners to buy US debt to hedge their holdings. - Accumulating budget deficit (mandatory public spending‚ military spending) huge military spending due to wars in Iraq and Afghanistan. 9/11 and war on terrorism. Foreign investors are willing to accept lower yield than domestic
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prevent its further appreciation. Such intervention will have a direct impact on the Yen/Dollar exchange ratio and might adversely impact the profitability of Diva Shoes. This was an excellent time‚ according to Diva’s financial consultant Stone‚ to hedge Diva’s position on the Yen and lock it at a rate that will guarantee to meet the company’s goal of 15% growth. Stone explored 2 options for hedging‚ forward contact and options‚ each with its pros and cons. By locking the rate using a forward contract
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PIXONIX INC. - Currency Exposure Answers Question #1 The company Pixonix Inc is based in Canada and its revenues are based in CAD‚ however Pixonix dealt with US firms‚ so a majority of Pixonix’s expenses were paid in US Dollars. Of key interest is the annual payment of US$7.5million at the end of January each year as well as the payments made at the end of June each year (which required the CAD to be converted to USD). Recently the CAD has been appreciating and positively affecting Pixonix’s
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during the different seasons of the year. Rainfall is a part of our life in some areas‚ almost daily‚ and others randomly‚ affecting every business in some sort of way. Although we can’t predict or control the weather‚ there is a way companies can hedge any losses that weather could potentially contribute to. Using a Rainfall Future Contract does this. These help companies manage risk and access profit opportunity. Chicago Mercantile Exchange happens to be the largest trader of commodities and
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State said that while Russia and the United States were reducing their nuclear arsenals drastically‚ and co - op-erating in NATO‚ each country was maintaining a hedge. “We’ll always have a hedge against uncertainty in the future‚ in our military forces in the nuclear weapons that the United States will continue to retain‚ ”he said.“ It’s a hedge against the future‚ because
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