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Assignment One: On February 14, 2012 Brandon Tyler, Assistant Treasurer at Allied Digital (AD), sits in his office, talk to himself, “I must get this hedging memo done, and get out of here. Foreign exchange options? I had better get the story straight before someone in the Finance Committee starts asking questions. Let’s see, there are two ways in which I can envisage us using options now. One is to hedge a dividend due on September 15th from AD Germany. The other is to hedge our upcoming payment to Matsumerda for their spring RAM chip statement. With the yen at 78 and increasing I’m glad we haven’t covered the payment so far, but now I’m getting nervous and I would like to protect my posterior. An option to buy yen on June 10 might be just the thing. American Digital is a $12 billion sales company engaged in, among other things, the development, manufacture, and marketing of microprocessor-based equipment. Although 30 of the firm’s sales are currently abroad, the firm has full-fledged manufacturing facilities in only three foreign countries, Germany, Canada, and Brazil. An assembly plant in Singapore exists primarily to solder Japanese semiconductor chips onto circuit boards and to screw these into Brazilian-made boxes for shipment to the United States, Canada, and Germany. The German subsidiary has developed half of its sales to France, the Netherlands, and the United Kingdom, billing in euros. AD Germany has accumulated a cash reserve of €900,000, wort ...
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