Question
A Jordanian investor in furniture manufacturing with headquarter located in Amman has recently transferred one of the production lines to china seeking a cheaper labor
A Jordanian investor in furniture manufacturing with headquarter located in Amman has recently transferred one of the production lines to china seeking a cheaper labor force, he pays salaries in chines Yawn on a monthly basis). He used to import the raw material from Indonesia and pay in Indonesian Rupiah. The main targeted markets for his products are west European countries, he used to receive the price in Euro through a transfer to his account in Amman. The supplier gave him one month of free of interest settlement period to pay for the material. The importers place their orders two months prior to the delivery date and pay on that date. The risk manager has the challenge to manage the risk of exchange rate changes for the four currencies used (JD, Indonesian Rupiah, Euro, and Chines Yawn). Design the most suitable derivatives to hedge against the exchange rate risk between these four currencies.
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