Vogl Company is a U.S. firm conducting a financial plan for the next year. It has...

Vogl Company is a U.S. firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its sales are from exports. Its foreign cash inflows to be received from exporting and cash outflows to be paid for imported supplies over the next year are shown in the following table:

Currency	Total Inflow	Total Outflow
Canadian dollars (C$)	C $35,000,000	C $4,000,000
New Zealand dollars (NZ$)	NZ $5,000,000	NZ $1,000,000
Mexican pesos (MXP)	MX.P. 12,000,000	MX.P. 10,000,000
Singapore dollars (S$)	S $4,000,000	S $10,000,000

The spot rates and one-year forward rates for these currencies as of today are as follows:

Currency	Spot Rate	One-Year Forward Rate
C$	$ 0.75	$ 0.80
NZ$	0.60	0.58
MXP	0.18	0.15
S$	0.65	0.60

Based on the information provided, determine the net exposure of each foreign currency in US dollars. 8 Marks

Given the forecast of the Canadian dollar along with the forward rate of the Canadian dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Canadian dollars one year forward? Would you hedge the Canadian dollar position? Why?

5 Marks

Given the forecast of the Singapore dollar along with the forward rate of the Singapore dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Singapore dollars one year forward? Would you hedge the Singapore dollar position? Why?

Expert Solution

Net Exposure f each foreign currency in US dollars :

Currency	Total Inflow	Total Outflow	Net Inflow	Forword Rate of US Dollor	Net Inflow in US Dollor
Canadian dollars (C$)	C $35,000,000	C $4,000,000	3,10,00,000.00	0.8	2,48,00,000.00
New Zealand dollars (NZ$)	NZ $5,000,000	NZ $1,000,000	40,00,000.00	0.58	23,20,000.00
Mexican pesos (MXP)	MX.P. 12,000,000	MX.P. 10,000,000	20,00,000.00	0.15	3,00,000.00
Singapore dollars (S$)	S $4,000,000	S $10,000,000	-60,00,000.00	0.6	-36,00,000.00
					2,38,20,000.00

jeff jeffy answered 2 years ago

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