You work for a company where the CFO thinks that the value of the firm's assets fluctuate widely with the euro-dollar exchange rate does not want to hedge the firm's exchange rate risk because he thinks it is impossible. How can you convince him to hedge?
What will be an ideal response?
Answer: In order to hedge the euro-dollar exchange rate, it is necessary to first understand the relationship of the dollar to the euro. If we find that the value of the firm goes up when the euro strengthens relative to the dollar and the value of the firm is low when the euro is weak versus the dollar, then the firm has euro assets whose dollar value increases when the euro appreciates. An appropriate hedging strategy to describe to the CFO is one where some of the firm's debt would be denominated in euro. Euro liabilities will increase in value when the euro strengthens. The firm could also sell euro forward. There would be profits when the future exchange rate of the euro per dollar rose unexpectedly, that is when the euro weakened and the value of the firm was low.
You might also like to view...
This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years. At date of grant, Haven stock was selling on the Nasdaq for $19 per share. For financial statement purposes, Haven recorded $16,500 compensation expense for the estimated value of the option.a. How much income must Olivia recognize as a result of the grant of the option? b. Can Haven deduct the $16,500 compensation expense on this year's tax return? c. Assuming a 21% tax rate, compute Haven's deferred tax asset or deferred tax liability (identify which) resulting from the $16,500 compensation expense.
What will be an ideal response?
Products that use standard components, but the final configuration of those components is customer-specific, are called make-to-order products
Indicate whether the statement is true or false.
________ takes visibility a step further and seeks to replace certain physical processes with virtual ones
Fill in the blank(s) with the appropriate word(s).
Ron's Furnace Repair advertised it would inspect any homeowner's furnace for free. Janet had Ron's come to inspect her furnace. The servicewoman dismantled the entire furnace then refused to put it back together unless Janet paid her $250. The FTC considers such a practice to be
A. an unfair practice. B. a deceptive practice. C. an act that violates public policy. D. All of these are correct.