1.In one of the cases this term, Westwood Plastics, a model for risk management was discussed. Illustrate / diagram the model and indicate where you would plot foreign exchange risk, revenue volatility risk and employee talent loss risk in the case.

The company explored three techniques to handle its short spot euro foreign exchange exposure. Using the data below for the three techniques, calculate and illustrate the profit and loss for each technique.

1.C$:1 euro budget = $1.35 (not hedge the exposure)

2.C$:1 euro forward = $1.36

3.C$:1 euro call option = $1.35 and $0.02 premium

Assume the spot rate moves to $1.38 and separately $1.34 for the forward and option. Calculate and illustrate the profit or loss. Use cents in your calculation (e.g., profit is $0.02 cents).

Why would the CFO not hedge the exposure? (10 marks)