Ryu Shinzato

Blades case Chapter 11 homework

10/29/2015

Future spot(Baht)
0.2
0.0213
0.217
0.22
0.23
0.235
0.1872166667

1.Compare the hedging alternatives for the Thai baht with a scenario under which Blades remain unhe
Money market Headge

Unhedged

206,730,000.00 (45000 pairs of Speedos * pair price)

-54,000,000.00 (18000 importing materials * par price)
152,730,000.00
$ 3,512,790.00

Forward hedge
$ 3,283,695.00
Money market hedge
$ 3,719,359.62 $ 3,737,327.54
Options are not avilable

Taking all the results obtained above into acoount, Blades should use money marke

2.Compare the hedging alternatives for the British pound receivables with a scenario under which Bla

Unhedged
4,000,000.00 (50000 pairs of Speedos * pair price)
$ 6,000,000.00
Forward hedge
$ 5,960,000.00
Money market hedge
$ 6,108,000.00
Put Option
$
290,000.00
$ 1,160,000.00
$ 1,752,000.00
$ 1,470,000.00
$
888,000.00
$
300,000.00

6005882

5,860,000.00

From the results above, Blades should utilize money market hedge because it is the

3. In general, is it easier for Blades to hedge its inflows or its outflows denominated in foreign currenc
Yes, it is easier for Blades to hedge its inflows because it has agreement with foreig

4.Would any of hedges in question 2 require Blades to overhedge? Is it subject to overhedgeing with a
None of the hedges require Blades to overhedge since they are not call option,whic

5.Could Blades modify the timing of the Thai imports in order to reduce its transacrion exposure? Wha
Yes, Blades would not necessarily need to make payment on the first day of each qu

6. Could Blades modify its payment practices for the Thai imports in order to reduce its transaction ex
This question is answered together with question 5.

7. Given Blades' exporting agreements, are there any long-term hedging techniques Blades could ben
If Blades predicted that Thai baht will appreciate in the future for a while, the firm c

Future spot(Pound)

Premium(Baht)

Premium(Pound)

1.45

1.45 N/A

0.2

1.47
1.48
1.49
1.5
1.52
1.485

1.45 N/A
1.46 N/A
1.47 N/A
1.48 N/A
1.5 N/A

0.2
0.2
0.2
0.2
0.2

hich Blades remain unhedged? If Blades should hedge, which headge is most appropriate?

Unhedged
$
42,461,498.23
$
3,344,023.00

hould use money market hedge because it gives the best deal among the others.

cenario under which Blades remains un hedged. Which hedge is the most appropriate for Blades?

hedge because it is the most expensive deal that gives the highest profit to the firm.

nated in foreign currencies? Why?

as agreement with foreign customers and does not heavily rely on exports, which reduces its concerns about ov

t to overhedgeing with a money market hedge?

are not call option,which is more likely to subject of overhedging, and fixed prices in the agreement could stabi

nsacrion exposure? What is the trade-off?

n the first day of each quarter in order to maintain its trade relationship because it has 60 days of payment term

educe its transaction exposure? What is the trede-off of such a modification?

niques Blades could benefit from? Assume that Blades incurs all of its costs in the U.S.
re for a while, the firm could use long-term hedging to avoid paying extra dollars caused by the appreciation. O

or Blades?

0.05
0.2
0.3
0.25
0.15
0.05

ces its concerns about overhedging,. Uncertaintity of future exchange rate is its major concern.

e agreement could stabilize the receivables for Blades to be in a certain range.

60 days of payment terms that could be utilized for a call option and the value depreciation in Thai baht to be w

d by the appreciation. On the other hand, if Thai baht kept depreciating its value after the firm had ustilized lon

ion in Thai baht to be waited until the exhancge rate to be beneficial to the firm. While waiting for the call optio

he firm had ustilized long-term hedging, the firm would make a loss.

waiting for the call option to be favorable, Blades could ask its Thai customer to make payment in advance so t

payment in advance so that it does not have to worry about its trade relationship to the manufacture. The trade

e manufacture. The trade-off would be if the call option or expected value depreciation in Thai baht did not turn

in Thai baht did not turn out well, it would not have the benefit as anticipated. In addition, Blades would have t

ion, Blades would have to keep it in mind how it will deal with the payment its customer paid for in advance. Bla

r paid for in advance. Blades could Either let them deduct the payment amount from their next quarter's payab

heir next quarter's payable or pay the amount as soon as possible, which could require Blades to overhedge.

Blades to overhedge.