Reference no: EM133074022
You work for firm XYZ situated in Britain, 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 near future.
Information about Firm XYZ:
1. The firm imports high quality wool to Britain from foreign suppliers located in Australia and the New Zealand.
2. The firm exports Jewelry to USA from Britain.
3. The firm exports designer clothes from Britain to Australia, New Zealand and Singapore.
4. The firm has a payment of 8,000,000 AUD due in 3 months to their supplier in Australia, a payment of 6,000,000 NZD due in 2months to their supplier in New Zealand.
5. The firm is due to receive 9,000,000 AUD from their customer in Australia in 2 months, 4,000,000 NZD from their customer in New Zealand in 2 months, 700,000 SGD from their customer in Singapore in 1 months, and 9,000,000 USD from their customer in USA in 2 months
6. The firm is concerned with the impacts of the potential high inflation rate due to the recent expansionary monetary policy globally in their exporting and importing business
Questions:
1. Use the information above to consider the types of exposure your firm may face.
2. Discuss the firm's risk management implications given their exposure and design hedging strategies for the firm. You also need to evaluate the hedging outcome -what will the outcome be if exposure is hedged and what will the outcome be if exposure is not hedged.
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