You work for firm ABC situated in Australia, and your boss has become concerned about the current economic environment, especially as it is related to the different types of exposures that your firm may face in the future. You are asked to provide a report, which evaluates your firm’s exposures, the risk management implications for your firm, and possible hedging strategies for
the next 6 months. You are also required to provide a recommendation for what your firm should do.
Information about Firm ABC:
1. Firm ABC is an agricultural machinery manufacturer located in Australia.
2. The firm imports parts from foreign suppliers in Japan, Germany, and the United States.
3. The firm exports its products to New Zealand, Canada, the United Kingdom, and Italy.
4. The firm has three payments of 300,000,000 JPY due in every 2 months to their supplier in Japan over the next 6 months, and two payments of 3,000,000 EUR due in every 3 months to their supplier in Germany over the next 6 months, a payment of 8,000,000 USD due in 4 months to their supplier in the United States.
5. The firm is due to receive two payments of 5,000,000 NZD from their customer in New Zealand in 3 months and then in 6 months, a payment of 6,000,000 CAD from their customer in Canada in 4 months, a payment of 7,000,000 GBP from their customer in the United Kingdom in 3 months, a payment of 4,000,000 EUR from their customer in Italy in 3 months.
6. The firm has2,000,000 EUR kept in a term deposit account earning an interest rate of 3.5% per annum in the United Kingdom. The term deposit matures in 3 months.
7. The firm is concerned about the impacts of global-wide high inflation rates, global-wide interest rate hikes, and the global geopolitical environment on the prospects of their business.
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