1. Using a spreadsheet, compare the hedging alternatives for the Thai baht with a scenario under which Blades remains unhedged. Do you think Blades should hedge or remain unhedged? If Blades should hedge, which hedge is most appropriate?
2. Using a spreadsheet, compare the hedging alternatives for the British pound receivables with a scenario under which Blades remains unhedged. Do you think Blades should hedge or remain unhedged? Which hedge is the most appropriate for Blades?
3. In general, do you think it is easier for Blades to hedge its inflows or its outflows denominated in foreign currencies? Why?
4. Would any of the hedges you compared in question 2 for the British pounds to be received in 90 days require Blades to overhedge? Given Blades’ exporting arrangements, do you think it is subject to overhedging with a money market hedge?
5. Could Blades modify the timing of the Thai imports in order to reduce its transaction exposure? What is the tradeoff of such a modification?
6. Could Blades modify its payment practices for the Thai imports in order to reduce its transaction exposure? What is the tradeoff of such a modification?
7. Given Blades’ exporting agreements, are there any long-term hedging techniques Blades could benefit from? For this question only, assume that Blades incurs all of its costs in the United States.

MINI CASE

Blades, Inc., has recently decided to expand its international trade relationship by exporting to the United Kingdom. Jogs, Ltd., a British retailer, has committed itself to the annual purchase of 200,000 pairs of “Speedos,” Blades’ primary product, for a price of £80 per pair. The agreement is to last for 2 years, at which time it may be renewed by Blades and Jogs. In addition to this new international trade relationship, Blades continues to export to Thailand. Its primary customer there, a retailer called Entertainment Products, is committed to the purchase of 180,000 pairs of Speedos annually for another 2 years at a fixed price of 4,594 Thai baht per pair. When the agreement terminates, it may be renewed by Blades and Entertainment Products.
In addition to this information, Ben Holt has informed you that the 90-day borrowing and lending rates in the United States are 2.3 and 2.1 percent, respectively, on a nonannualized basis. He has also identified the following probability distributions for the exchange rates of the British pound and the Thai baht in 90 days: