Ge Toys
Executive Summary
For many years, Great Eastern Toys has not hedged its transactions and has been very lucky that there were no detrimental changes exchange rates. But now, due to the currency crisis in East Asia, the firm is reconsidering its strategy. The firm is currently deciding between the use of forward contracts, money market hedges, and options.
Each choice has certain advantages and disadvantages. Forward contracts protect against downside risk at no financial cost but also prevent the firm from being able to take advantage of upswings in exchange rates. By using the money market, the firm can avoid exchange rate risk, but still face interest risk. A great benefit to the money market hedge is that it allows the firm to pay off it outstanding loans. Options allow a firm to benefit from upswing potential and protect against downside risk. However, there are required upfront premium payments.
Based on our firm's analysis in the choice between forward contracts......
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Approximate Word Count: 589
Approximate Pages: 3 (250 words per double-spaced page)
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