1 Using a spreadsheet, compare the hedging alternatives for the Thai baht with a scenario under which Blades remains unhedged. Do you think Blades should hedge or remain unhedged? If Blades should hedge, which hedge is most appropriate?

Blades plc has recently decided to expand its international trade relationship by exporting to the United States. Jogs Inc a US retailer, has committed itself to the annual purchase of 200 000 pairs of ‘Speedos’, Blades’ primary product, for a price of $80 per pair.
The agreement is to last for two years, at which time it may be renewed by Blades and Jogs.
In addition to this new international trade relationship, Blades continues to export to Thailand. Its primary customer there, a retailer called Entertainment Products, is committed to the purchase of 180 000 pairs of Speedos annually for another two years at a fixed price of 4594 Thai baht per pair. When the agreement terminates, it may be renewed by Blades and Entertainment Products.
Blades also incurs costs of goods sold denominated in Thai baht. It imports materials sufficient to manufacture 72 000 pairs of Speedos annually from Thailand. These imports are denominated in baht, and the price depends on current market prices for the rubber and plastic components imported.

Transcribed Image Text:

Thailand (baht) United States (dollar) Current spot rate 0.0153 0.66 90-day forward rate 0.0143 Put option premium Not available Put option exercise Not available 0.68 price Call option premium Not available 0.67 0.013 per unit Not available 0.010 per unit Call option exercise Not available 0.68 price 90-day borrowing 4% 2% rate (non- annualized) 90-day lending rate 3.5% 1.8% (non-annualized)