Qualicum Qontainers (UK) has purchased some equipment from the U.S. subsidiary o

Question

Qualicum Qontainers (UK) has purchased some equipment from the U.S. subsidiary or Maple Leaf, Inc. of Canada. The invoice is payable in June (3 mos.) for pound30,000,000 (British pound Sterling). This is the month of March. Maple Leaf, Inc. currency risk policy is to leave USD/CAD foreign-exchange rate exposures unhedged. Other currency risk exposures are managed. Data from the financial and currency markets follows. Develop the different methods that Maple Leaf may employ to manage this transaction exposure illustrated with the quantitative analysis. Which technique do you recommend and why? In addition, suppose this transaction exposure was expected to continue in the long-run; what strategies may be conducted to combat this continuing currency risk?

Explanation / Answer

first you need to calculte the exchange rates of currencies in the month of June

based on the rate calculate how much you need to pay to the seller

to calculate exchange rates, you decide what factors you should consider

and what is transaction exposure and how it effects your company's balance sheet.

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