Blades Inc. Case Assignment Essay

709 Words Dec 16th, 2016 3 Pages
Blades Inc. Case Assignment
Answers
1) Blades Inc. should hedge their Baht funds using a money market hedging instrument. The money market hedge will have the highest net cash inflow at $3,448,614; whereas the forward hedge will have a net cash inflow of $3,283,695. If left un-hedged, then Blades would only have a 20% probability of having a cash inflow higher than the money market instrument.

Net Baht Paid (A/P)
Pairs Manufactured 18,000 x Estimated cost per pair 3,000
Total 54,000,000

Net Baht Received (A/R)
Pairs Sold 45,000 x Revenue per Pair 4,594
Total 206,730,000

Net Inflow 152,730,000

Forward Hedge for Thai Baht Total Dollar Amount in 90 Days
Forward Rate 0.0215
Net inflow 152,730,000
Total $ 3,283,695

Money Market Hedge for Thai Baht Borrow Baht to invest in $
Amount in Baht borrowed $ 146,855,769
Dollars received from converting Baht $ 3,377,682.69
Dollars accumulated after 90 days $ 3,448,614.03

Un-Hedged for Thai Baht
Possible Spot Rate Total Dollars Received
(Net Inflow X Possible Spot Rate) Probability $ 0.0200 $ 3,054,600 5% $ 0.0213 $ 3,253,149 20% $ 0.0217 $ 3,314,241 30% $ 0.0220 $ 3,360,060 25% $ 0.0230 $ 3,512,790 15% $ 0.0235 $ 3,589,155 5%

2) Blades Inc. should hedge their British pounds using a money market hedge instrument. The money market hedge will have the…

Related Documents