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F. Mayer Imports: Hedging Foreign Currency Risk

In September 2014, F. Mayer Imports Pty. Ltd., an Australian gourmet food importer, had a narrow window of opportunity to potentially protect its budget exchange rate for the rest of that, and the following, financial year. With imports such as European butter, chocolate, and cheese, the company procured a significant portion of its product in euros. The Australian dollar to euro exchange (AUD/EUR) dropped from a high of 0.7027 in October 2013 to a low of 0.6369 in January 2014. With the AUD/EUR recently rebounding and edging back toward the company’s budget rate of 0.6900, the company’s chief financial officer needed to choose between four proposed hedging strategies.

Collection: Ivey Business School (Canada)
Ref: IVEY-9B17N004-E
Format: PDF
Number of pages: 8
Publication Date: Feb 27, 2017
Language: English
Review date: Feb 27, 2017

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Description

In September 2014, F. Mayer Imports Pty. Ltd., an Australian gourmet food importer, had a narrow window of opportunity to potentially protect its budget exchange rate for the rest of that, and the following, financial year. With imports such as European butter, chocolate, and cheese, the company procured a significant portion of its product in euros. The Australian dollar to euro exchange (AUD/EUR) dropped from a high of 0.7027 in October 2013 to a low of 0.6369 in January 2014. With the AUD/EUR recently rebounding and edging back toward the company’s budget rate of 0.6900, the company’s chief financial officer needed to choose between four proposed hedging strategies.
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Year: 2014
Geographic Setting: Australia
Industry Setting: Wholesale Trade;

Learning Objective

This case is suitable for advanced financial risk management courses and MBA courses in financial and corporate management. The case puts students in the chief financial officer’s situation to do the following: ·appreciate volatility in foreign currencies and how it may impact a company’s profit margin and competitive advantage in the marketplace; ·understand and evaluate various foreign currency risk-hedging strategies by using payoff diagrams; and, ·understand that there are costs to every hedging strategy, even when the strategy is identified as “zero cost.”

F. Mayer Imports: Hedging Foreign Currency Risk

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"F. Mayer Imports: Hedging Foreign Currency Risk"