case that the cost per USD is CAD 0.90; the parity case that the cost per USD is CAD 1.00; and the pessimistic case that the cost per USD is CAD 1.10. See attached. 3. What is the total CAD cost at the end of January of the required USD if Pionix hedges forward? (A sentence or two. Show details in an exhibit.) See attached. 4. Show how the total CAD cost at the end of January of hedging with an option varies under the three scenarios. (The total cost includes what you pay for the USD and what
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order to hedge its exposure? 8. Financial liabilities- Would it be more likely to be adversely affected by an increase or a decrease in interest rates? Should it purchase or sell interest rate futures contracts in order to hedge its exposure? 9. Why do some financial institutions remain exposed to interest rate risk‚ even when they believe that the use of interest rate futures could reduce their exposure? 10. Explain the difference between a long hedge and a short hedge used by financial
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What is GM’s foreign exchange hedging policy? GM’s foreign exchange hedging policy has three primary objectives. Its first objective is to reduce cash flow and earnings volatility. Specifically‚ management hedges the company’s transaction exposures and consciously ignores any balance sheet exposures (translation exposures). Second‚ GM aims to minimize the management time and costs dedicated to global FX management. The company employs a passive FX management strategy since an internal study
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Accounting for Derivative Instruments Page 1 of 22 Appendix 17A Accounting for Derivative Instruments Until the early 1970s‚ most financial managers worked in a cozy‚ if unthrilling‚ world. Since then‚ constant change caused by volatile markets‚ new technology‚ and deregulation has increased the risks to businesses. In response‚ the financial community developed products to manage these risks. These products—called derivative financial instruments or simply‚ derivatives—are useful for managing
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MNCs will normally compare the cash flows that could be expected from each hedging technique before determining which technique to apply. A futures hedge involves the use of currency futures. To hedge future payables‚ the firm may purchase a currency futures contract for the currency that it will be required. A forward hedge differs from a futures hedge in that forward contracts are used instead of futures contract to lock in the future exchange rate at which the firm will buy or sell a currency .An
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use of the Case Research Journal. Not for reproduction or distribution. Fuel Hedging in the Airline Industry: The Case of Southwest Airlines By Dave Carter‚ Dan Rogers‚ and Betty Simkins “If we don’t hedge jet fuel price risk‚ we are speculating. It is our fiduciary duty to try and hedge this risk.” Scott Topping‚ Director of Corporate Finance for Southwest Airlines June 12‚ 2001: Scott Topping‚ the Director of Corporate Finance for Southwest Airlines (hereafter referred to as “Southwest”)
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of the yen against the dollar was observed from 1983 to 1993‚ but there was evidence that the yen was overvalued against the dollar in 1993‚ and thus a distinct probability that the yen may eventually crash. Therefore‚ Tiffany needs to actively hedge the yen-dollar exchange rate risk especially from Exhibit 7 considering the potential depreciation of yen which would have a negative impact to Tiffany’s financial results. The yen-dollar exchange rates would have different ways to be exposed to Tiffany’s
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the price may decline‚ he can hedge by selling 100 tons of September wheat futures at a price that is set today. Farmer has to make delivery. On the opposite a miller will buy wheat after the harvest. The miller agrees to take delivery of wheat in the future at a price that is fixed today without option. The farmer has hedged risk by selling wheat futures; this is termed a short hedge. The miller has hedged risk by buying wheat futures; this is known as a long hedge. The price of wheat for immediate
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hedgerows decreased by 28% in Britain between 1945 and 1974 (Vincent‚ 1990). This was followed by a net loss of 23% hedgerows (about 130‚000 km) between 1984 and 1990. Between 1978 and 1990 on average one plant species was lost from each 10 metres of hedge‚ an 8% loss of plant species diversity (Department of Environment‚ 1994). Hence‚ ancient and species-rich hedgerows have now been identified as ‘priority habitats’ (The UK Biodiversity Steering Group‚ 1995). Research and action to protect these features
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In recent years there has been considerable growth in the use of credit derivatives‚ which protect lenders against the risk that a borrower will default. For example‚ bank A may be reluctant to refuse a loan to a major customer (customer X) but may be concerned about the total size of its exposure to that customer. Speculators in search of large profits (and prepared to tolerate large losses) are attracted by the leverage that derivatives provide. By this we mean that it is not necessary to lay out
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