Case Study Analysis

Case Study Analysis - Case Study GLOBAL FINANCE FIN/403 Introduction There are a great number of opportunities for firms outside of their domestic

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Case Study GLOBAL FINANCE FIN/403 January 26, 2009 Introduction
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There are a great number of opportunities for firms outside of their domestic nations. With these great opportunities there are also risks involved. If a company wishes to successfully expand outside of their home nation they must not only be aware of the risks but also the methods by which they can hedge that risk to minimize the damage of a negative risk experience. No risk to a business with foreign operations may be greater than the exchange rate risk. For a business to be successful in foreign operations they must be able to hedge their foreign exchange risk. Currency Options If Blades uses call options to hedge its yen payables it should use the call option with the exercise price of .00756. Even though this option has a higher premium on the exercised option than the other price it has a lower total cost. With an exercise price of . 00756 the total cost to purchase the necessary yen is $96,390.00 with the premium included. At the exercise price of .00792 the cost of the necessary yen is $100,417.50 with the premium included. As we can easily see the cost of the first option is less in the event that the option must be exercised. Though the cost is higher with the first option than with the second, in the case that the option is unnecessary, the difference in cost in that case is only $472.50 as opposed to the difference of over $4,000 if the option does
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This note was uploaded on 08/17/2011 for the course BUS 200 taught by Professor Torres during the Spring '11 term at University of Phoenix.

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Case Study Analysis - Case Study GLOBAL FINANCE FIN/403 Introduction There are a great number of opportunities for firms outside of their domestic

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