please help me answer question 1 and 2. I need to write an report paper. please be more specific.

Exacta, s.a., is a major French producer, based in Lyons, of precision machine tools. About two-thirds of its output is exported. The majority of these sales is within the European Union. However, the company also has a thriving business in the United States, despite strong competition from several U.S. firms. Exacta usually receives payment for exported goods within two months of the invoice date, so that at any point in time only about one-sixth of annual exports to the United States is exposed to currency risk. The company believes that its North American business is now large enough to justify a local manufacturing operation, and it has recently decided to establish a plant in South Carolina. Most of the output from this plant will be sold in the United States, but the company believes that there should also be opportunities for future sales in Canada and Mexico. sh is ar stu ed d v i y re aC s o ou urc rs e eH w e r as o. co m The South Carolina plant will involve a total investment of USD$380 million and is expected to be in operation by the year 2018. The investment will be made in Q3 2017. Annual profits from the plant are expected to be about USD$52 million per year in 2018, 2019 and 2020. Half of the profits will be retained by the South Carolina plant, but the remaining half will be transferred to Exacta in French. Exacta's CFO Mr Pangloss has contacted the FX division of Standford Investment Consultation Pty Ltd. General manager of the FX division has assignment this assignment to your team. Please write a report to provide advice to Mr Pangloss regarding Exacta's transaction exposures that may arise from its North American operation. The following three tasks must be addressed in your report. Task 1 Identify Exacta's transaction exposures from its planned U.S. operations over the period of 2017 to 2020. Regarding Exacta's transaction exposures, discuss the potential profit or loss to be resulted by exchange rate fluctuations from 2017 to 2020. Hint: You should at least analyse the two extreme scenarios: (1) what if USD/EUR rate increases significantly every year from 2017 to 2020; (2) what if USD/EUR rate falls significantly from 2017 to 2020. You are allowed to make assumptions regarding the possible future rates. Th Task 2 How to hedge Exacta's transaction exposures by using forward contracts? Explain why. Hint: You need to consider whether you should buy or sell forward contracts to hedge Exacta's transaction exposures. Task 3 Using data from Bloomberg, advice Exacta's management team whether they should hedge Exacta's transaction exposures or not. Explain your advice in details. Hint: You should compare the different outcomes under hedging and non-hedging decisions for Exacta's transaction exposures over the period of 2017 to 2020 and always use EUR as the currency for all the monetary items in your explanations. You are required to provide the Bloomberg data/table/chart in your report as the supporting evidence to your advice. FIN926 Advanced Managerial Finance Sydney Business School https://www.coursehero.com/file/21407155/FIN926-Assignment-tasks/ Powered by TCPDF (www.tcpdf.org) University of Wollongong