Reference no: EM133071520
You work for firm XYZ situated in France, and your boss has become concerned about the current economic environment, especially as it is related to the different types of exposures that your firm may face in the near future. You are asked to provide a report, which evaluates how your firm is exposed, the risk management implications for your firm, and possible hedging strategies. You are also required to provide a recommendation for what your firm should do.
Information about Firm XYZ:
1. The firm imports high quality wool to France from foreign suppliers located in Australia and the New Zealand.
2. The firm exports leather goods to USA from France.
3. The firm exports designer clothes from France to Australia, New Zealand and Singapore.
4. The firm has a payment of 8,000,000 AUDdue in 3 months to their supplier in Australia, a payment of 6,000,000 NZDdue in 2months to their supplier in New Zealand.
5. The firm is due to receive 8,000,000 AUD from their customer in Australia in 2 months, 4,000,000NZD from their customer in New Zealand in 2 months, 700,000 SGD from their customer in Singapore in 1months, and 5,000,000 USD from their customer in USA in 2 months
6. The firm is concerned with the impacts of the potential high inflation rate due to the recent expansionary monetary policy globally in their exporting and importing business
QUESTION:
1. Discuss the firm's risk management implications given their exposure and design hedging strategies for the firm. You also need to evaluate the hedging outcome -what will the outcome be if exposure is hedged and what will the outcome be if exposure is not hedged.
Note from asker: Identified exposure is FX exposure. From my analysis, EUR/SGD and EUR/USD have generally low volatility for the year (2021) while EUR/AUD and EUR/NZD have generally high volatility for the year. I would like to see hedging strategies using real time quotes (2 months forward etc.) however I'm unsure how to go about doing it. Would appreciate your help thank you!
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