Pixonix Inc. – Addressing Currency Exposure

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PIXONIX INC. – ADDRESSING CURRENCY EXPOSURE RISK MANAGEMENT CASE ANALYSIS 2011 2011/3/16 CONTENT 1. Background of the company ----- Pixonix 3 2. Problem to solve 3 1. What is Exchange Rate? 4 2. The factors which affect the exchange rate between American and Canada 4 Strategy 1: hedging with a forward 7 Strategy 2: hedging with a call option 8 1. Decision-making 14 2. Conclusion: 14 1. Synthetic forward 15 2. Compound option 17 1. Background of the company ----- Pixonix Location: Prxonix operates in Toronto Canada Main business: A graphic company the licensed proprietary tools and software through a U.S. company. Revenues: denominated in Canadian dollars Convert Expenses: paid in U.S. dollars Problem:Canadian dollars U.S. dollars Risk: Exchange rate risk 2. Problem to solve Cain faced a considerable amount of uncertainty about the value of the Canadian dollar at the end of January, when she would have to purchase US$7.5 million. 1. What is Exchange Rate? Exchange rate is also called "foreign exchange market or conversion rate". Monetary exchange for the currency of another country ratio, is a kind of currency says another currency prices. 2. The factors which affect the exchange rate between American and Canada History data In the history from January 1990 to December 2007, the CAD/UAD seldom exceeds 0.95. So the spot exchange rates of 1.07 is extremely high, and according to the RBC’s predict, the tip point of the exchange rate is 1.08, leaving little room for increasing. Thus, it’s very reasonable to worry about the probable appreciation of USD. . the curve of CAD/USD exchange rate fluctuation (1) The causes of CAD’s appreciation in the second half year of 2007: International commodity(especially oil):The commodity

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