4 Assume that the Canadian dollar net inflows may range from C$20 000 000 to C$40 000 000 over the next year.

Explain the risk of hedging C$30 000 000 in net inflows. How can Vogel Ltd avoid such a risk? Is there any tradeoff resulting from your strategy to avoid that risk?

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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