Case ID: A06080004
Solution ID: 21302
Words: 1060
Price $ 75

Vanguard Security Corporation Foreign Exchange Hedging Dilemma Case Solution

Case Solution

The case is based on a transaction between import and export parties. The Vanguard Corporation discusses the exchange rate risks as well as financing decisions for the parties. The issues of bid risk and it management, exposure to economic risk are also discussed in the case. The solution is an integration of qualitative and quantitative assessments of the situation. It requires the use of four exchange rates and forecasting methods. It also entails the implementation of the criteria for selecting hedging products in order to find out the best solution based on the needs of the treasurer of the company.

Excel Calculations

Foreign Currency Futures Contract

Foreign Currency Options

Tunnel Forwards

Foreign Currency Loan

Presale of Foreign Contract

Macroeconomic Data

 

Future EX Rate 

 Interest Rate Parity

 Purchasing Power Parity

 International Fisher Effect

 

Hedging Tools

 Hedging using Foreign Currency Option

 Hedging Using Tunnel Forward

 Foreign Currency Loan

 Hedging Using Forward Currency Contract

 Hedging using Future Currency contract

 Presale of Foreign Contract

Questions Covered

1- What are the risks or exposures faced by VSC?

2- Forecast the exchange rate for the contract period using the four techniques (Interest Rate Parity, Purchasing Power Parity, and International Fischer Effect & Balance of Payments). 

3- Which hedging tool should VSC use and why? Justify your answer.