1. Assume that OSG currently has accounts receivable of US $1 million from a US company...

 

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1. Assume that OSG currently has accounts receivable of US $1 million from a US company which will be paid in three months. Explain and calculate how one might hedge the company's FX risk. Use the information on Appendix 1. a. Forward hedge b. Money market hedge (borrow US$, exchange to JPY at spot rate, then use receivable to repay the US$ debt) c. Option hedge Run a comparison to what would happen if company did not hedge and JPY appreciated at the end of three months to JPY/USD 105? What if yen depreciated to JPY/USD = 125? 2. In addition to #1 a b and c, explain non-hedging techniques for OSG to minimize transaction exposure 3. Describe FX risk of OSG Corporation based on page 6 of the case, Exhibits 5, 8 and 9. Assess potential for loss or gain. 4. Should OSG hedge its transaction exposure? Why or why not? If company were to hedge, which method should be used? How would you determine the amount to be hedged? (hint looking at question 6 would help. 5. Explain and assess OSG's current policy. In the face of the appreciating yen, would you recommend any changes to policy? Why or why not? 1. Assume that OSG currently has accounts receivable of US $1 million from a US company which will be paid in three months. Explain and calculate how one might hedge the company's FX risk. Use the information on Appendix 1. a. Forward hedge b. Money market hedge (borrow US$, exchange to JPY at spot rate, then use receivable to repay the US$ debt) c. Option hedge Run a comparison to what would happen if company did not hedge and JPY appreciated at the end of three months to JPY/USD 105? What if yen depreciated to JPY/USD = 125? 2. In addition to #1 a b and c, explain non-hedging techniques for OSG to minimize transaction exposure 3. Describe FX risk of OSG Corporation based on page 6 of the case, Exhibits 5, 8 and 9. Assess potential for loss or gain. 4. Should OSG hedge its transaction exposure? Why or why not? If company were to hedge, which method should be used? How would you determine the amount to be hedged? (hint looking at question 6 would help. 5. Explain and assess OSG's current policy. In the face of the appreciating yen, would you recommend any changes to policy? Why or why not?

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a Forward hedge To hedge its FX risk using a forward contract OSG can enter into an agreement with a bank to sell USD 1 million after three months at a predetermined exchange rate forward rate The for... View the full answer