# Use the forecast final sales volume of 25,000 (base case) and analyze the possible outcomes relative to

## Question:

Use the forecast final sales volume of 25,000 (base case) and analyze the possible outcomes relative to the "zero impact" scenario for the following three hedging strategies:

- No hedge
- 100% hedge with forwards
- 100% hedge with options.

You can use the Excel template "Hedging Currency Risks at AIFS Base Case Template.xlsx" to answer this question.

Hint: The company forecasts its expected costs in dollars, using the current USD/EUR exchange rate, and these forecast costs provide a benchmark. If actual dollar costs are the same as forecast costs, there is “zero impact” on the company’s forecast cash flow. Actual dollar costs may be higher or lower than the benchmark costs because of fluctuations in the USD/EUR exchange. The impact of each hedging strategy is measured relative to the benchmark costs, or by comparing actual dollar costs using the hedge to the benchmark (“zero impact”) costs.

**Related Book For**

## Cost Accounting A Managerial Emphasis

ISBN: 978-0133392883

6th Canadian edition

Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ