Question
Valley Farms of Canada has purchased 3,000 tonnes of barley from Murphy Company in Ireland at 100 euros per tonne, payable in one year. The
Valley Farms of Canada has purchased 3,000 tonnes of barley from Murphy Company in Ireland at 100 euros per tonne, payable in one year. The current spot rate is 1.5550(C$/euro) and the 1-year forward is 1.4970. Analysts in the international financial market suggest that the spot rate in one year will be 1.4483. Interest rates in Canada are currently 3.7% for one year and 3.9% in Ireland.
Required:
a) Outline with calculations three alternative actions available to Valley Farms to handle its foreign exchange exposure. (10 marks)
b) Advise the company which alternative they should take, providing the reason for your recommendation (2 marks)
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