Diva Shoes manufactures primarily leather shoes. Diva Sources leather from Italian suppliers and other materials from US suppliers. All materials were cut to the company’s specifications by suppliers and then sent to Brazil for assembly. Diva’s product were sent for sale to most important cities in the world such as Rome and Milan, Italy, Paris, France, Tel Aviv, Israel, Toronto, Canada, New York, Miami, Los Angeles, and Starting 1993, Tokyo, Japan. Diva Shoes is a relatively small player, but its products had developed a loyal following among high-end customers and wholesalers who were eager to attract retailers. Diva had made no real attempt to manage foreign exchange risk so far. High profit margins and offsetting inflows and out flows in particular markets are both reasons to allow Diva to set aside foreign exchange risk. In Japanese market, revenue growth surpassed expectations and wholesalers indicated a desire to increase their orders significantly. Diva had no productive asset in Japan and no plan to add them. As a result, the company incurred almost no cost in yen. Nevertheless, the Japanese yen had been appreciated greatly in the past few months. Rumors on possible G-7 meeting to stop appreciation of yen and market prospective of underestimated USD are both indicating that Diva may expose to an exchange risk in its Yen revenue. Diva had 2.5 billion yen sales through 1994 fiscal year and it is expect the revenue will grow greatly in 1995. Diva is targeting a minimum 15% growth in EPS to take the company public in the next several years. A spot rate below JPY 92/USD1 would leave the company comfortable position to achieve this goal. The current spot rate is JPY 89.6/USD1.
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