3 Given the forecast of the Canadian dollar along with the forward rate of the Canadian dollar, what is the expected increase or decrease in pound cash flows that would result from hedging the net cash flows in Canadian dollars?

Would you hedge the Canadian dollar position?

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Vogel Ltd is a UK firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its sales are from exports. Its foreign cash inflows to be received from exporting and cash outflows to be paid for imported supplies over the next year are shown in the following table: Currency Total Inflow Total Outflow Canadian dollar (C$) C$32 000 000 C$2 000 000 New Zealand dollar (NZ$) NZ$5000 000 NZ$1.000.000 Mexican peso (MXP) MXP11 000 000 MXP10 000 000 S$4 000 000 S$8 000 000 Singapore dollar (S$) The spot rates and one-year forward rates as of today are shown below: Currency Spot Rate One-Year Forward Rate C$ 0.60 0.63 NZ$ 0.40 0.39 MXP 0.14 0.12 S$ 0.42 0.41