Chapter 12: Small Business Dilemma Hedging the Sports Exports Company’s Economic Exposure to Exchange Rate Risk Jim Logan, owner of he Sports Exports Company, remains concerned about his exposure to exchange rate risk. Even if Jim hedges his transactions from one month to another, he recognizes that a long-term trend of depreciation in the British pound could have a severe impact on his firm. He believes that he must continue to focus on the British market for selling his footballs. However, he plans to consider various ways in which he can reduce his economic exposure. At the present time, he obtains material from a local manufacturer and uses a machine to produce the footballs, which are then exported. He still uses his garage as a place of production and would like to continue using his garage to maintain low operating expenses. 1. How could Jim adjust his operations in order to reduce his economic exposure? What is a possible disadvantage of such an adjustment?
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This note was uploaded on 02/14/2011 for the course FINANCE 640 taught by Professor Sen during the Fall '10 term at UMBC.