Hedging Strategies to Maximize USD Proceeds in Foreign Transactions
Q 3: In scenario A (exchange rate will be 0.7975 USD per AUD) and strategy (a) (no hedge), what are your USD proceeds?
What are the potential risks of not using a hedging strategy in foreign currency transactions?
Q 4: In scenario B (exchange rate will be 0.6525 USD per AUD) and strategy (a) (no hedge), what are your USD proceeds?
How can fluctuations in currency exchange rates impact the USD proceeds in foreign transactions?
Answer:
To calculate the USD proceeds without any hedge in scenario A, we need to multiply the amount of AUD by the exchange rate of 0.7975 USD per AUD. Given that Delta inc will receive 2 million AUD, the USD proceeds without any hedge would be:
Scenario A (Exchange Rate: 0.7975 USD per AUD)
USD proceeds = 2,000,000 AUD * 0.7975 USD per AUD
USD proceeds = 1,595,000 USD
Therefore, the USD proceeds without any hedge in scenario A would be approximately 1,595,000 USD.
Using the same 2 million AUD, the USD proceeds without any hedge in scenario B would be:
Scenario B (Exchange Rate: 0.6525 USD per AUD)
USD proceeds = 2,000,000 AUD * 0.6525 USD per AUD
USD proceeds = 1,305,000 USD
Therefore, the USD proceeds without any hedge in scenario B would be approximately 1,305,000 USD.