Design hedging strategies for the firms foreign currency

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Reference no: EM133491582

Question: You work for firm SuperV situated in Germany, and your boss has become concerned about the current economic environment, especially as it is related to the different types of exposures that your firm may face in the future. You are asked to provide a report, which evaluates your firm's exposures, the risk management implications for your firm, and possible hedging strategies for the next 6 months. You are also required to provide a recommendation for what your firm should do.

Information about Firm SuperV:
1. Firm SuperV is a car manufacturer located in Germany.
2. The firm imports parts to Germany from foreign suppliers in Japan, Turkey, Italy and the United States.
3. The firm exports cars to New Zealand, the United States, Australia, and Norway.
4. The firm has three payments of 70,000,000 JPY due in every 2 months to their supplier in Japan over the next 6 months, and two payments of 2,000,000 USD due in every 3 months to their supplier in Turkey over the next 6 months, a payment of 4,000,000 EUR due in 6
months to their Supplier in Italy, two payments of 3,000,000 USD to their supplier in the United States due in 3 months and 6 months, respectively. The firm may also have a payment of 3,000,000 USD due in 6 months to their supplier in Turkey but this is not certain as the firm is negotiating with this supplier on the possibility of paying them EUR instead of USD.

5. The firm is due to receive 9,000,000 NZD from their customer in New Zealand in 3 months, 10,000,000 USD from their customer in the United States in 6 months, 8,000,000 AUD from their customer in Australia in 6 months and 30,000,000 NOK from their customer in Norway in 6 months.

6. The firm is concerned about the impacts of global-wide high inflation rates, global-wide interest rate hikes, and the global geopolitical environment on the prospects of their business.

Design hedging strategies for the firm's foreign currency exposures. You need to explain why your chosen hedging strategies are better than the other strategies by calculating and then evaluating the hedging outcomes - what will the outcomes be if exposures are hedged using your hedging strategies and what will the outcomes be if exposures are not hedged or using other hedging strategies. Please also discuss the impacts of hedging foreign currency exposures on the firm's cost of capital and firm value.

Reference no: EM133491582

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