Analyzing derivatives and hedging

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Question 1: Analyzing Derivatives and Hedging

For each of the following, indicate whether the hedge would be classified as a fair value hedge or a cash flow hedge.

Point a. Morningstar locks in a price on a forward contract to buy soybeans over the next 12 months.

Point b. General Motors enters into a foreign currency futures contract on Canadian dollars to hedge its C$200 million bond issuance.

Point c. Emirates Airlines takes delivery of 10 new Boeing jets. The contract was denominated in $US instead of Emirati Dirams (AED). Emirates will settle the accounts payable in six months. To hedge its exposure, Emirates buys $US futures contracts.

Point d. Apple Inc. has foreign currency options to buy Chinese Yuan to hedge payments to FoxConn, the Chinese company that manufactures Apple products.

Point e. Poole Construction signs a contract to build a soccer stadium in Mexico. The contract is denominated in Mexican pesos. Poole buys foreign currency options to sell Mexican pesos

Reference no: EM132494407

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