ital12.00%Spot RiskHedging AlternativesValuesRate (Rp/$)Assessment 1.

Remain Uncovered,

settling A/P in 180 days at spot rate If taking on massive quantities of foreign currency

denominated debt (primarily U.S. dollars). When the Thai baht (B)was devalued from its pegged

rate of B25.0/$ in July 1997, Siams interest payments alone were over $900 million on its

outstanding dollar debt (with an average interest rate of 8.40% on its U.S. dollar debt at that

time). Assuming Siam Cement took out $50 million in debt in June 1997 at 8.40% interest, and

had to repay it in one year when the spot exchange rate had stabilized at B42.0/$, what spot

rate in 180 days is same as current spot3,365,464.34492.52 large shipment of toys (primarily

Barbies and Hot Wheels) to a major distributor in Antwerp. The receivable, 30 million, is due in

90 days, standard terms for the toy industry in Europe. Mattels treasury team has collected the

following currency 57Risky If spot rate in 180 days is same as forward

rate3,541,666.66672.4000Risky If spot rate in 180 days is expected spot

rate3,269,230.76922.6000Risky 2. Buy Japanese yen forward 180 days Settlement amount at

forward rate (Rs)3,541,666.672.4000Certain 3. Money Market HedgePrincipal A/P

()8,500,000.00discount factor for yen investing rate for 1 10.6 Mattel Toys Mattel is a U.S.-

based company whose sales are roughly two-thirds in dollars (Asia and the Americas) and one-

third in euros (Europe). In September Mattel delivers a and market quotes. The companys

foreign exchange advisors believe the euro will be at about $1.4200/ in 90 days. Mattels

management does not use currency options in currency risk management activities. Advise

Mattel on which hedging alternative is probably preferable. 80 days0.9926Principal needed to

meet A/P in 180 days ()8,436,724.5658 Current spot rate (/Rs)2.5257Indian rupee, current

amount (Rs)3,340,411.2605P&G India's WACC carry-forward factor for 180 days1.0600Future

value of money market hedge (Rs)3,540,835.94Certain 4. Indian Currency Agent

HedgePrincipal A/P ()8,500,000.00Current spot rate (/Rs)2.5257Current A/P (Rs)3,365,464.34

Plus agent's fee (4.850%)163,225.02P & G India's WACC carry-forwad factor for 180 days on

fee1.0600Total future value of agent's fee (Rs)173,018.52 Total A/P, future value, A/P + fee
(Rs)3,538,482.87Certain Evaluation of Alternatives The currency agent is the lowest total cost,

in CERTAIN future rupee value, of all certain alternatives. Pbm10.2 Problem 10.2 Siam Cement

Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the

coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth

strategy in the mid-1990s, was the foreign exchange loss incurred on the transaction?

AssumptionsValueUS dollar debt taken out in June 1997$50,000,000US dollar borrowing rate

on debt8.400%Initial spot exchange rate, baht/dollar, June 199725.00Average spot exchange

rate, baht/dollar, June 199842.00 Calculation of Foreign Exhange Loss on Repayment of Loan

At the time the loan was acquired, the scheduled repayment of dollar and baht amounts would

have been as follows: Scheduled Repayment:Repayment of US dollar debt:

Principal$50,000,000Repayment of US dollar debt: Interest4,200,000 Total