FX Exposure Assignment

The following situations represent different types of FX exposure. Please identify the exposure in each case if any as a balance sheet exposure involving translation risk, income exposure involving transaction risk or operating exposure involving the firm’s long-term business activities. Then in each case identify the specific types of hedge the firm should use if any to hedge that exposure from the following list: forward, future, option, swap, money market [borrow and convert], netting, FDI. If no hedge is needed explain why.

a) Citibank issues a US$ CD to fund a loan to Novartis in Danish Kroner;

b) Swatch whose home currency is SF sells watches priced in US$ to its US dealers on 90-day terms;

c) Toyota invests in a $3 billion expansion of Kentucky plant by converting Yen loan to $;

d) Walmart expects a dividend payment in pesos every quarter in 2020 from its Mexican subsidiary;

e) Jet Blue has contracted to buy Euro 5 billion in planes spread over 6 years with first delivery beginning in 2 years;

f) Intel is looking to expand global production and believes the Indian rupee is not correlated with its other production locations;

g) Apple has ordered $50 million in watches on 60-day terms from China denominated in Yuan;

h) American Express pays a US tourist’s hotel bill in SF and will receive a $ credit card payment in 30-days;

i) Hilton Hotels borrows 100 million pounds from a UK bank to renovate its hotel in London, England;

j) Hilton expects that both tourists and UK residents will pay by credit card. Get Finance homework help today