A small adhesives company faces exchange rate risks as it makes its first foray into international sales. The receipt of payment from an unhedged foreign-currency-denominated past sale illustrates potential currency risks while a potential follow-on order provides a context to discuss potential hedges. Sufficient detailed information is provided for the students to construct and analyze both a forward and money market hedge. A teaching note and instructor and student Excel spreadsheets are available.

Learning Objectives

The case can be used in a core finance class or dedicated international finance class to espose students to exchange risks and hedging. It is designed to achieve the following learning objectives: explore the magnitude and effect of exchange rate risks; to illustrate exchange rate risk management through two conventional hedges, a forward contract hedge and a money market hedge; to demonstrate market parity and identify how preferences arise from unique company characteristics; and to explore issues related to pricing of international bids.