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Vogl Company is a U.S. firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its
- Vogl Company is a U.S. firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its sales are from exports. Its foreign cash inflows to be received from exporting and cash outflows to be paid for imported supplies over the next year are shown in the following table:
Currency | Total Inflow | Total Outflow |
Canadian dollars (C$) | C $35,000,000 | C $10,000,000 |
New Zealand dollars (NZ$) | NZ $5,000,000 | NZ $1,000,000 |
Mexican pesos (MXP) | MX.P. 12,000,000 | MX.P. 8,000,000 |
Singapore dollars (S$) | S $4,000,000 | S $12,000,000 |
The spot rates and one-year forward rates for these currencies as of today are as follows:
Currency | Spot Rate | One-Year Forward Rate |
C$ | $ 0.76 | $ 0.80 |
NZ$ | 0.62 | 0.58 |
MXP | 0.19 | 0.15 |
S$ | 0.66 | 0.60 |
- Based on the information provided, determine the net inflow/outflow exposure Vogel has to each foreign currency in US dollars.
- Given the forecast of the Canadian dollar as shown by the forward rate of the Canadian dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Canadian dollars one year forward? Would you hedge the Canadian dollar position? Why?
- Given the forecast of the Singapore dollar as given by the forward rate of the Singapore dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Singapore dollars one year forward? Would you hedge the Singapore dollar position? Why?
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