The Case:

Graduate students must be able to make sound business decisions that are well supported. This project represents decision making in a global context.

Porter Products Inc. purchases vitamins from a supplier abroad. The invoices received by Porter are denominated in the foreign currency. Porter understands that fluctuations in foreign currency exchange rates may adversely affect the company's earnings. The CFO of Porter wants you to investigate derivative instruments and determine whether or not the use of a foreign currency forward contract or foreign currency option contract is best to hedge the company's exposure to foreign currency exchange risk.

REQUIRED:

1. Examine the foreign currency exchange rate for the country during themost recenttwelve-

month period. Create a graph of the exchange rate.

NOTE: do not copy a graph; you should use Excel to create the graph.

Draft a memo to explain to the CFO the advantages and disadvantages of using a foreign currency forward contract and foreign currency option contract for hedging. Based on the history of the exchange rates (from above), how might the choice between the derivatives instruments impact Porter?

Make a recommendation on the hedging instrument that you believe the company should use. Justify/support your recommendation.

The busy CFO appreciates the documentation of your analysis, but also wants you to discuss your findings and recommendations. Assume you are called to his/her office and asked to explain your findings and recommendations. Prepare a 5 minute video of the discussion that you would have with the CFO.

Note:Porter'sforeign supplier is from one of the following countries. Select one for your analysis

China Colombia Mexico Japan

India Egypt Ukraine South Korea

Canada Switzerland Ethiopia

Limit your discussion to (3) pages.

Use at least three sources to help support your discussion. Feel free to use relevant sources and cite them appropriately.