Mark all the scenarios that represent a short hedge. A company is preparing to conduct an...

Mark all the scenarios that represent a short hedge.

		A company is preparing to conduct an SEO in two weeks. It plans to hedge against adverse market movements in the meantime.
		GE needs to repay a corporate loan on June 15th, at which time the company plans to refinance the amount with a new 3% coupon bond issue. GE is worried that if interests rates move adversely, the new issue will be selling under par.
		An American company importing from Japan pays quarterly for the shipped goods in Yen. The hedge will be for the Japanese Yen.
		A company is expecting to repatriate profits from its foreign subsidiary in foreign currency at the end of the year. (The underlying of the futures is the foreign currency.)
		An investor has invested a substantial sum with a venture capital fund in Brazil. The money will be tied up for the next three years, during which the investor wishes to use futures to guard against adverse movements in the Brazilian Real exchange rate.

Expert Solution

The scenarios are marked as follows:

A company is preparing to conduct an SEO in two weeks. It plans to hedge against adverse market movements in the meantime: This is a case of short hedge

GE needs to repay a corporate loan on June 15th, at which time the company plans to refinance the amount with a new 3% coupon bond issue. GE is worried that if interests rates move adversely, the new issue will be selling under par: This is a case of short hedge

An American company importing from Japan pays quarterly for the shipped goods in Yen. The hedge will be for the Japanese Yen: This is not a case of short hedge.

A company is expecting to repatriate profits from its foreign subsidiary in foreign currency at the end of the year. (The underlying of the futures is the foreign currency.): This is a case of short hedge

An investor has invested a substantial sum with a venture capital fund in Brazil. The money will be tied up for the next three years, during which the investor wishes to use futures to guard against adverse movements in the Brazilian Real exchange rate: This is not a case of short hedge

jeff jeffy answered 2 years ago

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