You work for firm SV situated in Australia, and your boss has become concerned about the current economicenvironment, especially as it is related to the different types of exposures that your firm may face in the near future. Youare asked to provide a report, which evaluates your firms exposure, the risk management implications for your firm, andpossible hedging strategies for the next 6 months. You are also required to provide a recommendation for what your firmshould do.

Information about Firm SV:

Firm SV is an agricultural machinery manufacturer located in Australia.

The firm imports parts to Australia from foreign suppliers in Japan, South Korea and Germany.

The firm exports machines to New Zealand, the United States, Germany and Norway.

The firm has a payment of 70,000,000 JPY due in 1 months and a payment of 60,000,000JPY due in 6 months to their Supplier in Japan, a payment of 3,000,000 USD due in 3 months to their Supplier in South Korea, and two payments of 3,000,000 EUR to their Supplier in Germany due in 3 months and in 6 months, respectively.

The firm is due to receive 10,000,000 NZD and 10,000,000 AUD from their customer in New Zealand in 3 months, 7,000,000 USD from their customer in US in 3 months, 8,000,000 EUR from their customer in Germany in 6 months and 80,000,000 NOK from their customer in Norway in 6 months.

Question

Please design hedging strategies for the firm. You need to explain why your chosen hedging strategies are betterthan the other strategies by evaluating the hedging outcomes what will the outcomes be if exposures are hedged using your hedging strategies and what will the outcomes be if exposures are not hedged or using otherhedging strategies. Please also discuss the impacts of hedging currency exposure on the firms cost of capital andfirm value.