Reference no: EM131893596

Insight: You have a company in Mexico that needs to send its earnings back to the USA.

1) In general, there is a lack of long-term currency futures and options on the Mexican pesos. A consultant suggests that this is no problem because you can hedge your position quarter by quarter. Thus, while the consultant recognizes that the peso could weaken substantially in the long-term, he sees no reason why you should worry about it as long as you continually create a short-term hedge position. Do you agree? Please note that Mexico central bank has kept the interest rate differential between Mexico and the U.S. stays about the same over time to avoid spillover effect from political events and risk.?

2) From the peso-USD exchange rate forecast, it looks like peso would be declining for sometimes three or four years down the road. Your management team asks you to make a solid recommendation as how to manage each foreign exchange exposures respectively.

Please list the hedging policy recommendations regarding each exposure. Since you offered good recommendations in the past, your boss hopes you can offer some advantages and disadvantages for each of short and long term strategies so that they can be better informed and then to make good decision.?