Question
1.Vogl Company is a U.S. firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its
1.Vogl Company is a U.S. 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 dollars (C$)
C$35,000,000
C$4,000,000
New Zealand dollars (NZ$)
NZ$5,000,000
NZ $1,000,000
Mexican pesos (MXP)
MX.P. 11,000,000
MX.P. 10,000,000
Singapore dollars (S$)
S$4,000,000
S$10,000,000
The spot rates and one-year forward rates as of today are:
Currency
Spot Rate
One-Year Forward Rate
C$
$ 0.70
$ 0.75
NZ$
0.60
0.58
MXP
0.18
0.15
S$
0.65
0.60
a.Based on the information provided, determine the net exposure of each foreign currency in US dollars. 8 Marks
b.Given the forecast of the Canadian dollar along with the forward rate of the Canadian dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Canadian dollars one year forward? Would you hedge the Canadian dollar position? Why?
5 Marks
c.Given the forecast of the Singapore dollar along with the forward rate of the Singapore dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Singapore dollars one year forward? Would you hedge the Singapore dollar position? Why?
5 Marks
Total 18 Marks
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