You work for firm XYZ situated in Australia, and your boss has become concerned about the current economic environment, especially as it is related to the different types of exposures that your firm may face in the near future. You are asked to provide a report, which evaluates how your firm is exposed, the risk management implications for your firm, and possible hedging strategies. You are also required to provide a recommendation for what your firm should do.

Information about Firm XYZ:

1. The firm imports medical equipment to Australia from foreign suppliers located in Singapore, the United States and the Germany.

2. The firm also exports pharmaceuticals from Australia to Singapore.

3. The firm has a payment of 5,000,000 SGD due in 3 months to their supplier in Singapore, a payment of 4,000,000 USD due in 3 months to their supplier in US, and a payment of 500,000 EUR due in 1-month time to their supplier in Germany.

4. The firm is due to receive 2,000,000 SGD from their customer in Singapore in 4 months.

5. The firm also have 2,000,000 USD deposited in a bank in New York and the deposit is due to mature in 2 months. The money was deposited 10 months ago at an interest rate of 1.5% p.a.

Question:

Discuss the firms risk management implications and design hedging strategies for the firm. You also need to evaluate the hedging outcome what will the outcome be if exposure is hedged and what will the outcome be if exposure is not hedged.