Reference no: EM132219559

Assignment: Currency Options Used to Hedge Financial Exposure

The purpose of this Assignment is to assess foreign exchange rates impact on sets of cash flows or final payment.

Scenario: American Corporation purchased mechanical parts from a Mexican manufacturer. American Corp. will have to pay 200 million Mexican Pesos for the goods today.

Checklist: Solve the problem

• If the spot rate today is MP10/$. What is the dollar cost of American, Corp.'s payable?
• If the spot rate changed to MP9/$ how would that effect on the cost of the mechanical parts.
• If the intent for American Corp. is to immediately resell these parts for $25 million what is the impact of the exchange rate on profitability?
• Show your initial calculations based upon the initial spot rate versus the changed spot rate.
• Show the calculations regarding the sale price (USD) and the impact of the exchange rate on profitability and explain why.
• Explain strategies that could be employed to minimize exchange rate risk. Conduct research in the Purdue Global Library to address this checklist item (You may not use the Assigned reading material for this Assignment.)
• Include an in-text citation and accompanying reference on the reference page using APA format. (See APA Style Central in the Academic Tools area of the course for assistance.)

Access the APA Assignment template for your response.