(Solution Download) Hedging the Sports Exports Company


1. How could Jim adjust his operations to reduce his economic exposure? What is a possible disadvantage of such an adjustment?
2. Offer another solution to hedging the economic exposure in the long run as Jim?s business grows. What are the disadvantages of this solution?

 



MINI CASE

 



 

 

 

 

 

 

 

Jim Logan, owner of the Sports Exports Company, remains concerned about his exposure to exchange rate risk. Even if Jim hedges his transactions from one month to another, he recognizes that a long-term trend of depreciation in the British pound could have a severe impact on his firm. He believes that he must continue to focus on the British market for selling his footballs. However, he plans to consider various ways in which he can reduce his economic exposure. At the current time, he obtains material from a local manufacturer and uses a machine to produce the footballs, which are then exported. He still uses his garage as a place of production and would like to continue using his garage to maintain low operating expenses.

 

 







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