Choose a U.S. company with a foreign subsidiary on which to base your journal entry. Reflect on the company, the concepts in the unit, and the current economic environment in which the subsidiary operates and consider the current and historical exchange rate.
Imagine that you are a manager at the company you have chosen to study. You have been tasked with management of exchange rate exposure. Pick three of the prompts below to respond to in your journal entry.
Explain how the U.S. corporation could hedge the receivables and payables with future contracts. Would this be necessary for your company?
Consider the spot rate of the foreign currency and the deposit interest rate of the foreign country. Based on this information, would you implement a money market hedge? Why, or why not?
If the subsidiary’s foreign currency depreciates against the dollar this year, how can the company hedge its translation exposure?
How can the company reduce its economic exposure to exchange rate fluctuations in the foreign currency?