CASE: DIVA SHOES, INC.
1. What are Diva’s projected profits
for the fiscal year ending September 1995?
2. What factors affect a firm’s
exposure to exchange-rate risk? How much exposure to exchange-rate risk does
Diva Shoes have in April 1995?
3. Suppose that Diva chooses to hedge
its exposure in yen using the forward contract described in case Appendix A or
the currency option described in case Appendix B. Assume that you lock in these
contracts at the forward price implied by interest-rate parity for September
1995. Draw the payoffs to the position at maturity for each alternative with
the exchange rate defined in USD/JPY × 10,000 units (i.e., the same units as
the currency option is quoted). What do you see as the trade-offs between the
alternatives?
4. Do you think Bisno should remain
strictly a shoe salesman or do you favor hedging his exposure? If you favor
hedging, which alternative would you recommend to him?
5. You have carefully assessed the
situation at Diva Shoes; how serious is the firm’s exposure to exchange-rate
risk?
6. What factors significantly increase
the firm’s exposure? Decrease the firm’s exposure?
7. In your opinion, is the exposure
large enough to warrant hedging? If so, do you favor hedging via a forward
contract or currency option?
8. Complete your paper with a
conclusion and references. APA format.
No comments:
Post a Comment