Interest payable can be treated like an account payable

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Reference no: EM13937462

Your multinational corporation has net inflows (e.g. Accounts Receivable) of $1 million from Germany. In addition, your company financed the operations through a Swiss bank, such that you owe $1.1 million to pay off the loan in Switzerland (this Note and Interest Payable can be treated like an Account Payable). Both cash flows are due in six months.

We have learned that the Swiss franc and the Euro are highly correlated (r = .95). Assume that this high correlation is expected to continue. Your forecasting staff has indicated that the Swiss franc may exhibit minor appreciation over the next few months, but depreciation is unlikely.

You have determined that a forward hedge or a money market hedge would give the same result.

As top manager in your company’s Currency Risk Management Division, what you will decide to do concerning these currency exposures, and (briefly) explain why?

Address these ideas: net exposure, amount to hedge, choice of hedge method (if any), cost of initiating hedge.

Reference no: EM13937462

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