Dozier Industries (A)

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Urpgbe11

Business Finance

Grossmont College

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Hello I have presentation like you use to do before for me its for Dozier Industries (A) and Dozier industries (B). so my part in in Doizer Industries (A) there a are for question for it

1.Exactly what is Mr. Rothschild's exposure? If the price of the pound falls from its current price of $1.4480, will Rothschild win or lose?

2.According to Exhibit 5, has Rothschild's profit or loss changed over the last day?

3.Based on the most recent information you can find, what is the expected future spot rate for April 14, 1986?

4.Of the two hedging techniques, the forward and the spot hedges, which is more profitable? Do they have equivalent risk?

5.What should Richard Rothschild do?

so I want you to do for me point 4 and point 5 which is " 4.Of the two hedging techniques, the forward and the spot hedges, which is more profitable? Do they have equivalent risk?

5.What should Richard Rothschild do? "

these two points please but its realte it to the top three point in top, my other memebr in group will do it, so still will depand what he got maybe u will change a thing.

my part its explanation and talk and it has some numbers in it. I want you to everything you got give me asources from where did you get it and why did you get and like from where in article did you get it.

so Dozier Industries (A) and Dozier industries (B) are relates to each other, so when you read article read both of them but my art are in Dozier Industries (A).

I want you to gives me draft for what you did becuase I need to show to my group student what im on to see im on track. please I want you put it in slides and word document , but in first a word document.

I upload a article. and use english second language.

its like hedges which one is better.

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Explanation & Answer

Attached. Please let me know if you have any questions or need revisions.

Running head: Case Study: DOZIER COMPANY (A)

Case Study: Dozier Company (A)
Task: Foreign Exchange Risk and Hedging
Name
University
Date

1

DOZIER COMPANY (A)

2

Introduction
A currency hedging program needs a thorough analysis of all the risk factors that might
work against the business organization in the future. Managers need to understand not only the
risk exposures but also to choose the most viable hedging instrument. Understanding the
company's foreign exchange policies is the key to developing a proper hedging program. There
are two major hedging contracts linked with receivables: Forward and spot exchange contracts.
No. 4 The forward versus spot hedging techniques
The spot rate refers to the current market price of a bond, while the forward rate is the
same bond's future value. In the forward rate, the transaction takes place in the future date, while
for the spot rate, it takes place immediately. In the bond market, the price of the bond is
determined by the maturity period. If the yield period is short, the forward rate rises above the
face value rate. While choosing the best hedging technique, an analyst needs to consider the
currency risk's expected cash flows under question. If the hedging results in a mismatch of cash
inflows, a forward contract might not be the best option. They should not be used to hedge
unknown risks.
Going back to Dozier Industries (A) case, Exhibit 5, page 457, shows historical Spot and
Forward Pound rates between 1985 to 1986. On January 14th, 1986, the spot and forward rates
were $1.4370 and $1.4198, respectively. A forward contract can either be profitable or risky,
depending on the foreign exchange rate existing on maturity. The historical data shown in
Exhibit 5 can be used to predict the rates in the next three months. The data shows little
movement of the rates in the next three months. One of the advantages of a forward contract is
that the buyer can gain profits if the hedged risk is more specific. If the market price for the bond

DOZIER COMPANY (A)

3

at the time of maturity is lower than the prevailing price when signing the contract, the buyer
(Dozier Company) will gain profit and vice versa. However, the risky associated with forwarding
contracts is higher than the profit. On the other hand, spot contracts are standardized in nature are
best suited in hedging uncertain risks. One advantage that spot contracts have over future
contracts is that they are less risky.
The contract had a tiny profit margin of 6% (page 453, para 3, line 2) while the 90-day
pound loan as a result of selling the pounds forward (Page 452, para 5, line 6-7) would attract an
increased cost of 1.5% which is above the current U.K market rate (page 452, para 2, line 6).
Accounting to the Financial Accounting Standards on hedge accounting treatment, the probable
loss from hedging a risk should undoubtedly be offset by expected profit. The expected profit
margin of 6% cannot offset the possible expected loss. Therefore, the forward rate in this
scenario appears appropriate.
No. 5. What should Richard Rothschild do?
Richard Rothschild should arrive at a possible decision based on the nature of the
contract. Since the profit margin involved is low and the risky associated with the forward rate is
significant, Richard Rothschild should advise the company to adopt the sp...


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