Aspen Case Study

This case shows us that apart from transaction, translation and economic exposure to currency risk, firms also have the very real strategic impact on their competitive position from competitive exposure. Apart from GM’s exposure to the yen which is reflected in their financial statements, their competitive position vis-à-vis Japanese manufacturers is affected by a potentially declining yen. This is because a declining yen reduces the Japanese manufacturers’ $ cost, enabling them to pass on some of the benefit to US customers and thus taking some of GM’s market share. This will impact GM’s top and bottom line. However, GM has a difficult decision regarding managing this risk.

Exchange Rates: The Exchange Rates are other important global factors for which company’s ultimate revenue is affected. For example sudden major change in the Exchange rate of UK with other countries is a great threat or facility for TESCO PLC business.

The current 50% hedging policy executed at the fund level has served well for OTPP for the past ten years, contributing to the fund’s positive returns. The FX Hedge Program not only has minimized the downside risk, but has also limited the upside potential. If OTPP decided not to implement a hedging program in 1996, they would have lost about $983 million CAD over the ten year period (1995-2005) which is valued at 2% of the portfolio. With the hedging program, OTPP was able to reduce the overall loss to about $469 million CAD, but also limited the gain from the depreciation of the pound.(Exhibit 1) Hedging is an excellent short-term risk minimizing strategy for long term investors, sustaining a continual payout of pensions during volatile times in OTPP’s invested currency markets. Currently, approximately 21% of OTPP’s net assets are exposed to foreign currency risk. Consequently, it is essential that OTPP maintain a risk management program of hedging, as slight currency fluctuations can significantly affect the value of the fund. Similarly to continual renewal of swaps, hedging can be a very expensive risk management strategy.

From class, translation risk comes from the translation of the value of the asset from the foreign currency to the domestic currency. When the Punt/US$ exchange rate changes, Universal Circuits’ assets, liabilities, revenues, and expenses have to be recalculated and restated.

General Motors Corporation, the world’s largest automaker, has an extensive global outreach, which places the firm in competition with automakers worldwide, and subjects itself to significant exchange rate exposure. In particular, despite most of its revenues and production being derived from North America, depreciating yen rates pose problems for the firm indirectly through economic exposure. While GM possesses ‘passive’ hedging strategies for balance sheet and income statement exposures, management has not yet quantified or recognized solutions to possible losses from the indirect competitive exposure it now shared with Japanese automakers in the U.S import

This case explores the operating exposure of Jaguar PLC in 1984, just as the government is about to relinquish control and take the company public via an IPO. The primary concern of the CFO is that Jaguar sells over 50% of its cars in the US, while its production costs and factories are U.K.-based. This currency mismatch creates operating exposure for the firm that needs to be hedged.

Due to the geographic diversity of countries where BHP Billiton has extended to, the variation of foreign exchange rate obviously plays a crucial role on its financial performance. According to the annual report of BHP Billiton (2015), US dollar is not only the functional currency utilized in majority of sales and transaction, but also the presentation

Given the nature of its business, Jaguar is faced with three types of exchange rate exposure (1) Transaction, (2) Translation and (3) Economic . Transaction exposures arise whenever the firm commits (or is contractually obligated) to make or receive a payment at a future date denominated in a foreign currency. Translation exposures arise from accounting based changes in consolidated financial statements caused by a change in exchange rates. In this case we primarily focus on the Economic exposure -also known as Operating exposure or Competitive exposure- of Jaguar.

This report is created with a discussion over several important international finance topics for instance, interest-rate parity, currency risk management, regarding description on Carrefour S.A. financing policies as well as hedging strategy. Additionally, we also discussed on which currency Carrefour should issue its 10-year, 750 million euro, annual coupon bond, its foreign currency risk exposure and a possible hedging decision in dealing with any or all of the identified risks.

From Exhibit 6, it is demonstrated that the yen has been strengthening against the dollar, which would then increase the dollar value of Tiffany’s yen denominated cash inflows. Due to the fact that the yen is considered to be overvalued with regards to the dollar, the uncertainty of future rates will diminish the company’s profits. In addition, Tiffany is also keeping the company exposed to the volatility of the future exchange rate and

Financial theory offers several rationales for financial risk management. Hedging enables firms to maintain their access to internal funds as well as reduces the costs of financial distress. The theoretical framework offers, however, few tools for currency risk identification and for choosing a proper hedging instrument. This Thesis seeks to help firms manage risks better by defining the currency risk exposures of a multinational corporation, by describing their effects on the cash flows, profit and loss and balance sheet of the corporation as well as by comparing the applicability of currency forwards and currency options in hedging these exposures. The exposure framework is constructed based on an

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 profitability, however since some of the cash flows needed to be converted to USD Pixonix is exposed to currency exchange risk.

1. How profitable is the original sale to Novo once the exchange-rate changes are acknowledged? How has the exchange-rate risk, which affected the value of the order, been managed?

Despite the relevance of these words to the hedging costs, many companies find themselves with a corroborating these prices using a pricing system such as foreign exchange market, whose movements are determined portfolio full of complex (and dangerous) products and Bloomberg or Reuters. However, one of the important by a bewildering array of economic, political and technical features, such as increased leverage, extensions, and consequences for corporate treasuries of the recent banking factors, the focus that many hedging programs place on FX barrier options such as “knock-outs”. Such features are crisis has been that the task of ensuring fair pricing on market forecasts can often result in poor FX hedging most prevalent in so-called “zero cost” structures, and can derivative contracts has become simultaneously more decision-making. result in a number of unpleasant consequences, including difficult, and more important. Hedging Decisions

Foreign exchange rate has been around since 1875, where the gold was the conversion currency, but change in 1944 to the US dollars as the conversion unit. With the change to the dollar as the conversion unit came three important agencies that left a legacy to today’s international trade. Foreign exchange market has two main functions which is to provide foreign currency conversion and to hedge foreign exchange risks.