International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Transcribed Image Text:A global manufacturing firm is exposed to foreign exchange risks due
to its international operations. Fluctuations in currency exchange
rates can significantly impact the firm's revenue and profitability. The
firm is considering implementing a hedging strategy using financial
instruments like forward contracts or options to mitigate this risk.
However, hedging involves costs, and there's always a risk that the
hedging strategy may not perfectly align with actual market
movements. The firm must decide whether to hedge all or part of its
exposure and which financial instruments best suit its needs.
Moreover, the company should assess how macroeconomic factors
could influence currency trends. Should the firm hedge its foreign
currency risk or focus on operational strategies to reduce exposure?
Effective risk management will balance costs with financial stability.
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