Question
Dow, a U.S. maker of specialty chemical, exports 40% of its $20 million in annual sales: 5% to Canada and 7% each to Japan, Britain,
Dow, a U.S. maker of specialty chemical, exports 40% of its $20 million in annual sales: 5% to Canada and 7% each to Japan, Britain, Germany, France and Italy. It incurs all its costs in U.S. dollars, while most of its export sales are priced in the local currency (i.e., the currency of the customer)
2.1. Distinguish between Dow's transaction exposure and its operating exposure.
2.2. Can Dow eliminate its operating exposure by hedging its position every time it makes a foreign sale or by pricing all foreign sales in dollars? Why or why not?
Dow, a U.S. maker of specialty chemical, exports 40% of its $20 million in annual sales: 5% to Canada and 7% each to Japan, Britain, Germany, France and Italy. It incurs all its costs in U.S. dollars, while most of its export sales are priced in the local currency (i.e., the currency of the customer)
2.1. Distinguish between Dow's transaction exposure and its operating exposure.
2.2. Can Dow eliminate its operating exposure by hedging its position every time it makes a foreign sale or by pricing all foreign sales in dollars? Why or why not?
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Behavioral Finance And Investor Types
Authors: Michael M. Pompian
1st Edition
1118011503, 978-1118011508
