Your firm, based in Los Angeles, CA, manufactures copper wires for use in consumer electronics.It mines the copper that it uses in its products (i.e. it does not have to purchase the copper).It sells a significant portion of the products to firms in England and your firm has its own fleet of planes, transport ships, and trucks to deliver the goods that you produce.Due to the capital-intensive nature of its business, it frequently accesses short-term debt markets to finance its operations.

a.Describe the various risks that your firm faces that it might want to hedge.

b.You estimate that you sell approximately 1.5 billion worth of goods to English firms each month.You wish to use forward contracts to hedge the foreign exchange risk of these sales.You use the following website to find the forward bid/ask rates for each of the next 12 months.Assume that each rate is for delivery of 100 million for each delivery date.

https://www.investing.com/currencies/gbp-usd-forward-rates

For example, GBPUSD 01M FWD is the forward contract for delivery one month from today.As part of your answer, screen-capture and attach this page as part of your assignment.And the quotes are in basis points (e.g. 0.9600 = 0.96 bp, and 1 bp = $0.0001).

You hedge the entire exchange rate risk of the firm for the upcoming year.What is the cash flow that you will receive each month as a result of these hedges?

Answer rating: 100% (QA)

a Risks Faced by the Firm 1 Commodity Price Risk Fluctuations in copper prices can significantly imp... View the full answer