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1.What are Diva’s projected profits for the fiscal year ending September 1995?2.What factors affect a firm’s exposure to exchange-rate risk? How much exposure to exchange-rate risk does Diva Shoes have in April 1995?3.Suppose that Diva chooses to hedge its exposure in yen using the forward contract described in case Appendix A or the currency option described in case Appendix B. Assume that you lock in these contracts at the forward price implied by interest-rate parity for September 1995. Draw the payoffs to the position at maturity for each alternative with the exchange rate defined in USD/JPY × 10,000 units (i.e., the same units as the currency option is quoted). What do you see as the trade-offs between the alternatives?4.Do you think Bisno should remain strictly a shoe salesman or do you favor hedging his exposure? If you favor hedging, which alternative would you recommend to him?5.You have carefully assessed the situation at Diva Shoes; how serious is the firm’s exposure to exchange-rate risk?6.What factors significantly increase the firm’s exposure? Decrease the firm’s exposure?7.In your opinion, is the exposure large enough to warrant hedging? If so, do you favor hedging via a forward contract or currency option?8.Complete your paper with a conclusion and references. APA format.
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Madden International is a large ($7 billion sales), successful international pharmaceutical : operating in 23 countries with 15 autonomous subsidiaries.
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