Professional Documents
Culture Documents
Dear all:
We will discuss currency risk management on Feb 12 class. Please read chapter 34
(and also 33 if you can) from IM PAndey's book.
the lead questions for the case discussion are as follows.
1. explain non-hedging techniques for OSG to minimize transaction exposure, if a
ny.
2.What are the costs for alternatives for reducing short term foreign currency r
isk? Assume OSG has an account receivable of US$1 Million. USe the inforamtion p
resented in exhibit 1 for this account payable case of US$1 million to a US com
pany. Which of the possible hedging method presented in the case should OSG use
if they expect US $ to depreciate versus the yen in next three months ( the spot
will be yen 110/US $). USe the information provided in exhibit 10.
3.Suppose that OSG takes the same mandatory forward schedule as S Corporation,
the american company whose minimum forward cover schedule is shown in exhibit 9.
Use this forward-cover schedule to the US $ 1 million account receivable case f
or OSG and find expected total end of period value of the position taken by OSG.
OSG is expected to receive a US dollar (foreign currency) payment of US $1 mil
lion in next three months. the spot rate was Yen 115.03/US$ and the forward rate
was Yen 116.18/ US $ as shown in appendix1. use exhibit 10 for minimum forward
cover. (Note that Yen is the home currency for OSG)
a. What would be the amount required for forward cover?
b. If the spot rate for three months was expected to Yen 110/ US $, what
would be the amount in US $, covered and uncovered?
c. What would be the expected end of the period yen value of position ta
ken in question b? Suppose the spot rate in three months will be yen 115/ US $.