Hedging Strategies for Thor Corporation Case Study

Hedging Strategies for Thor Corporation
A review of the hedging strategies that can be employed to mitigate the foreign exchange risks facing Thor Corporation.
# 153258 | 869 words | 2 sources | APA | 2013 | KE
Published on May 10, 2013 in Business (International) , Business (Finance, Investment and Banking)

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The paper relates that Thor Corporation has adopted hedging strategies to eliminate foreign exchange risks resulting from transactions in foreign currencies. The paper reviews three alternative hedging strategies that include forward hedging, money market hedging and options hedging, and describes how they will be utilized by the company. The paper also points out that the company's corporate risk manager must liaise with FOREX experts and all other relevant departments within the company.

Summary of the Problem
Alternative Strategies and Analysis

From the Paper:

"With the increase in cross border corporate investment, familiarity with internationally oriented financial products and the activity of international money markets is crucial. Businesses engaged in international ventures should not let market-wide risks to disrupt their economic activities. Besides changes in commodity prices and interest rates, the businesses/ companies are faced with political and currency fluctuation risks. Azzopardi (2004) postulates that exchange rates between currencies of different countries are volatile, and movements in foreign currency exchange rates results to receiving lower amounts or paying higher sums due to currency appreciations and receiving higher cash flows or paying lower amounts than the expected. There are several ways/ instruments that are used to mitigate foreign exchange risks (Azzopardi 2004). These are referred to as hedging strategies. Saxena and Villar (n.d.) define hedging as "risk trading carried out in financial markets" p. 71. To facilitate hedging of risks that accumulate in their balance sheets, companies trade the risks that arise in their daily business activities.
"The Thor Corporation, having received its first international order, is subject to currency fluctuations in foreign exchange markets. Richard Mawby, the Treasurer, was deeply worried about the exposure of the company's payables and receivables in foreign currencies. The Corporation anticipated to venture in foreign sales and purchases, demanding an action regarding their exposure to foreign currency risks."

Sample of Sources Used:

  • Azzopardi, F. (2004). Exchange rates and hedging instruments. Retrieved December 2, 2010 from http://www.francoazzopardi.com/research/financial-risk-management.pdf
  • Saxena, S. and Villar, A. (n.d.). Hedging instruments in emerging market economies. Retrieved December 2, 2010 from http://www.bis.org/publ/bppdf/bispap44d.pdf

Cite this Case Study:

APA Format

Hedging Strategies for Thor Corporation (2013, May 10) Retrieved January 23, 2017, from http://www.academon.com/case-study/hedging-strategies-for-thor-corporation-153258/

MLA Format

"Hedging Strategies for Thor Corporation" 10 May 2013. Web. 23 January. 2017. <http://www.academon.com/case-study/hedging-strategies-for-thor-corporation-153258/>