Hedging risk in risk-management division

Reference no: EM1310555

Q1) You are bright new analyst in risk-management division at RMS, a multinational technology company, and have newly been put in charge of managing Euro/CAD exchange-rate risk which RMS faces. Let RMS’s operations in Europe and Canada.

a) Assume monthly revenues in Europe average ten million Euros and monthly production and distribution costs average eight million Euro. If resulting profits are repatriated to production unit in Canada monthly, what risk does this production unit face? How might it hedge this risk?

b) RMS’s worldwide retirement benefits unit is located in Canada and has obligation to pay its retired European employees twenty million Euros monthly. What does this unit face and how could it hedge the risk?

c) Provided transactions of production and retirement units as given previously, what do you conclude are exchange-rate risks faced by RMS as whole in Europe? Does RMS require to enter into forward contracts?

Reference no: EM1310555

Questions Cloud

Lateralization of function : The given is NOT a method commonly used to study lateralization of function in normal people:

Determine the alpha store as an investment of the company : What income amount should be used to evaluate the Alpha Store as an investment of the company?

Advantages of frame delay-atm-ethernet mans : On the basis of the current offerings for frame delay, ATM, and Ethernet MANs, explain the relative advantages of each.

Financial reporting which is based on coso framework : Prepare Friday's audit report that was submitted to Kim's board of directors 2011 and 2010 comparative financial statements. Kim is a public company.

Hedging risk in risk-management division : If resulting profits are repatriated to production unit in Canada monthly, what risk does this production unit face? How might it hedge this risk?

Incremental revenue and incremental income : Incremental revenue and incremental income (loss) associated with accepting the special order.

Estimating the probability : which of the given statistics would enable Caryl to estimate the probability that her bus will arrive in 5 minutes of its scheduled arrival time on any given day?

What is the estimated variable cost per unit : What is the estimated variable cost per unit of Cutter's product and Comparing least-squares regression to high-low estimation.

Loewen group expansion from funeral homes : Discuss whether Loewen Group expansion from funeral homes to cemeteries affected its horizontal or vertical boundaries or both.

User Account

All Pages