Adventure Planet Inc. is a U.S. based company producing toys and selling them on international market. It has secured a contract in Austria for a delivery of 1,000,000 stuffed panda toys for €10 apiece, that is for €10,000,000 in total. The contract will be settled in Euros after the toys are delivered.

Adventure Planet’s CFO, Charlie Bucket, is worried about the exchange. The current rate is 1.25 U.S. dollar for one Euro, but it has been fairly volatile lately. If the dollar strengthens to 1.15, the whole delivery would be producing a loss.

In theoretical terms, design at least two hedging strategies to solve this problem, assess how they would create value for Adventure Planet, and explain how they will contribute towards the company’s financial management.

Answer rating: 100% (QA)

Introduction International companies tend to face financial management risks due to the constantly changing currency exchange rates For instance a corporation such as the Adventure Planet Inc that is ... View the full answer