How can clearlake realistically deal with the dilemma

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Reference no: EM13935777

Hedging continual exposure. Consider this common real-world dilemma faced by many firms that rely on exporting. Clearlake Ltd produces its products in its factory in the UK and exports most of the products to Europe each month. The exports are denominated in euros. Clearlake recognizes that hedging on a monthly basis does not really protect against long-term movements in exchange rates. It also recognizes that it could eliminate its transaction exposure by denominating the exports in British pounds, but that it still would have economic expo- sure because European consumers would reduce demand if the euro weakened. Clearlake does not know how many euros it will receive in the future, so it would have difficulty even if a long-term hedging method were available. How can Clearlake realistically deal with this dilemma and reduce its exposure over the long term? (There is no perfect solution, but in the real world, there rarely are perfect solutions.)

Reference no: EM13935777

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