The Assignment on Treasury And Risk Management

Running head: TREASURY AND RISK MANAGEMENT
Treasury and Risk Management
Name of the Student:
Name of the University:
Author’s Note:

TREASURY AND RISK MANAGEMENT1
Table of Contents
Question 1........................................................................................................................................2
Bibliography....................................................................................................................................6

TREASURY AND RISK MANAGEMENT2
Question 1
ABC Company a US Based Company that is expecting to well receive 50 Million Euro
Payment. The movement of the currency would be affecting the net payment that the company
expects to receive and that can be happen both on a positive as well as on a negative scale. If the
USD Depreciates in response to the Euro Dollar than the company would be benefiting
positively. While on the other hand, if the company well expects the Euro Dollar then some
would be negatively affecting the cash flows for the company. It is well important to hedge and
assess the forex movement that is associated with the USD/EUR so that the forex risks can be
well mitigated. Costs involved along with the benefits, risks and returns that the company can
well expect from the list of available options are well shown below:
Unhedged Strategy: In this Strategy the company would not be entering into any ways or
methods for protecting the Euro Receivables and would be keeping itself uncovered/unhedged
(Aragon, Martin and Shi 2019). The type of strategy is generally followed when the movement
in response to the currency pair is certain. However in this case now if the Dollar appreciates in
this case by around 2% from $1.10 to around $1.08 then the loss that would be reported a loss of
around $1.1 Million.
Unhedged Strategy
Appreciation of USD
Particulars Amount
Current Forward Rate
$
1.10
Expected Appreciation in USD 2.00%
One Year Forward Rate
$
1.08
Amount Receivable
€
50,000,000
Receivable Amt Using Current Forward Rate (In
USD)
50000000*1.
10
Receivable Amt Using Current Forward Rate (In
USD)
$
55,000,000