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Explain two operational steps company

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Reference no: EM132722312

Suppose you work for Citibank in Thailand and you are considering making a loan to a Thai company that produces auto transmissions and has the following characteristics:

  • All finished transmissions are exported to China and sold in Yuan
  • Your company has an affiliation with Suzuki Motors of Japan to provide essential parts that are used in the manufacturer of your transmissions.These part purchases are made in Yen.
  • Your debt is all denominated in US$.
  • Your cash, stock and bond investments are all domestic in Thai Baht
  • The company has maintained good profitability over the last 5 years and is not overly leveraged

1a. As a potential lender to this company what concerns you with regard to this company's foreign exchange risk position?Explain using both B/S and I/S approaches.

1b. Explain two operational steps (natural hedges) this company could undertake to reduce its foreign exchange risk.

1c. What forward FX transactions would you suggest for the company to undertake to reduce its foreign exchange risk?

Reference no: EM132722312

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