You work for firm XYZsituated inBritain, and your boss has become concerned about the current economic environment, especially as it is relatedto 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 implicationsfor your firm, and possible hedging strategies. You are also required to provide a recommendation for what your firm should do.

Information about Firm XYZ:

- Thefirm imports high quality woolto Britainfrom foreign supplierslocated in Australia and the New Zealand.

- The firm exportsJewelleryto USA from Britain.

- The firm exports designer clothes from Britain to Australia, New Zealand and Singapore.

- The firm has a payment of 8,000,000 AUDdue in 3 monthsto their supplier in Australia,a payment of 6,000,000 NZDdue in 2months to their supplier in New Zealand.

- The firm is due to receive9,000,000 AUD from their customer in Australia in 2 months, 4,000,000NZD from their customer in New Zealand in 2 months, 700,000 SGD from their customer in Singapore in 1months, and 9,000,000 USD from their customer in USA in 2 months

- The firm is concerned with the impacts of the potentialhigh inflation rate due to the recent expansionary monetary policy globallyin their exporting and importing business

Questions:

1. Use the information above to consider the types of exposure your firm may face.

2. Discuss the firms risk management implicationsgiven their exposure and designhedging strategiesfor the firm. You also need toevaluate the hedging outcome what will the outcome be if exposure is hedged and what will the outcome be if exposure is not hedged.

3. You should consider the effect of thecurrenteconomic environmenton foreign exchange market, demand for exports/imports, supply of exports/imports and other relevant economic indicators,andrelatethis to how this may impact the firm.Particularly, you need to discuss the potential impacts of high inflation in therelevantcountriesfor the firmon the firms exporting and importing business