Exacta, s.a. case study

Report
MGMT 575
Group B Case Study 2
September 16, 2012
Samantha Allison
Leah Bond
Lisa Cochran
Louis Latimer
Overview
Company Background
 Statement of Problem
 Courses of Action
 Financial Information
 Analysis
 Recommendations
 Conclusion
 References

Company Background





Exacta, s.a. is major French machine tool
manufacturer.
Currently sells within Europe and the United
States.
Only 1/6th of annual U.S. exports are subject to
currency risk.
Interested in opening a new plant in N.
Carolina, opening the door to potential new
sales to Canada and Mexico.
N.C. plant will be a $380 million investment
with expected annual revenues of $420 million
and expected annual net profits of $52 million.
Statement of Problem





CEO and Finance Director are concerned
with currency risks between Euro and
Dollar.
Considering offsetting $380 million U.S.
plant investment by issuing dollar bonds.
What would Exacta’s exposure be from
new U.S. plant?
How would it change from the current
exposure?
What is the most effective and inexpensive
approach to hedging for that exposure?
Courses of Action

Option 1 – Finance the new plant by a
$380 million bond issue in dollars.

Option 2 – Sell forward at the beginning
of each year the expected revenues of
the plant.
Financial Information
Two thirds output exported, mostly
within the European Union.
 Net-60 invoice produces one sixth
current exposure to U.S. currency risk.
 New plant in US expected cost $380
million.
 Projected revenues of $420 million and
net profit of $52 million annually.

Financial Information

What would Exacta’s exposure be from
new U.S. plant?

How would it change from the current
exposure?

What is the most effective and
inexpensive approach to hedging for
that exposure?
Analysis
Current Exchange Rates
 Forward Exchange Rates
 Spot Rates

Current Exchange Rates
Current
Exchange
Rates
Price
Change
%Change
Day Range
52 Week Range
EUR/USD
1.3128
+0.0141
+1.0865%
1.2985 1.3169
1.2090 - 1.4155
AUD/USD
1.0557
+0.0011
+0.1052%
1.0537 1.0624
0.9388 - 1.0856
GBP/USD
1.6214
+0.0062
+0.3808%
1.5808 1.6254
1.5234 - 1.6302
USD/JPY
78.4000
+0.9150
+1.1809%
77.5050 78.3850
75.8265 83.7100
EUR/JPY
102.9243
+2.2621
+2.2472%
100.7555 103.0273
94.1172 111.5114
EUR/GBP
0.8097
+0.0056
+0.6906%
0.8037 0.8116
0.7790 - 0.8788
USD/CAD
0.9711
+0.0022
+0.2229%
0.9634 0.9722
0.9634 - 1.0536
USD/CHF
0.9268
-0.0084
-0.8961%
0.9240 0.9354
0.8598 - 0.9957
Current Spot Rate Exchange
Quote
Day
Week
Month
Year
14-Sep-12
13-Sep-12
7-Sep-12
15-Aug-12
15-Sep-11
Quote
% Chg
Quote
% Chg
Quote
% Chg
Quote
% Chg
Quote
Forex Spot Rates - 9 Majors
EUR/CHF
1.2104
EUR/JPY
100.3583
EUR/USD
0.1%
1.2094
0.4% 1.2050
0.3% 1.2014
-0.4%
1.2066
0.0% 100.4007
1.2% 99.2302
2.3% 97.0293
-8.8% 106.3526
1.2921
0.3%
1.2884
2.2% 1.2613
2.1% 1.2349
-10.8%
1.3846
GBP/EUR
1.2481
0.0%
1.2478
-1.0% 1.2607
-0.8% 1.2704
11.3%
1.1410
GBP/USD
1.6129
0.3%
1.6077
1.1% 1.5901
1.4% 1.5688
-0.7%
1.5804
USD/AUD
0.9544
-0.2%
0.9564
-2.1% 0.9767
2.6% 0.9516
-1.9%
0.9699
USD/CAD
0.9755
0.1%
0.9741
-1.4% 0.9882
-0.4% 0.9923
0.8%
0.9846
USD/CHF
0.9368
-0.2%
0.9387
-1.8% 0.9554
-1.8% 0.9729
11.6%
0.8714
USD/JPY
77.6578
-0.3% 77.9241
-1.0% 78.6736
0.1% 78.5727
2.3% 76.7700
Currency Conversion
Current Currency Table
Currency Last
Day High Day Low
% Change Bid
Ask
EUR/USD 1.3111 1.3128
1.3111
-0.11%
1.3111
1.3116
GBP/USD 1.6220 1.6238
1.6217
+0.04%
1.6220
1.6227
USD/JPY 78.320 78.420
78.320
-0.08%
78.320
78.370
USD/CHF 0.92600 0.92730
0.92620
-0.08%
0.92600
0.92690
USD/CAD 0.97160 0.97180
0.97030
+0.05%
0.97160
0.97220
AUD/USD 1.0533 1.0560
1.0535
-0.14%
1.0533
1.0538
Recommendations

Exacta should choose Option 2:
 Sell forward at the beginning of each year
the expected revenues of the plant
 Stability for Exacta and customer

Exacta should NOT choose Option 1:




Must comply with U.S. regs for traded bonds
Must register with SEC
Very long process
U.S. debt-rating agencies would determine
credit worthiness
Conclusion
Exacta concerned with currency risks
between Euro and Dollar.
 Exacta should sell forward at beginning
of each year expected revenues of the
plant.

References
Brealey, R., Myer, S., & Allen, F. (2011). Principles of
corporate finance. (10th ed.). New York, NY: McGrawHill Irwin
Currency Center. (2012). Retrieved September 15, 2012
from http://finance.yahoo.com/currency-investing
Currency hedging. (2011) Retrieved September 13, 2012
from http://www.theglobeandmail.com/partners/a
dvedc1111/currency-hedging-essential-toprofiting-from-internationaltrade/article1355447/?page=all
Derivatives to Hedge Risk. (2010). Retrieved September 13,
2012 from
http://www.investopedia.com/articles/stocks/04/12220
4.asp#axzz26PIszfXh
References
Foreign currency hedging. (2010). Retrieved September 13,
2012 from http://www.buzzle.com/articles/foreigncurrency-hedging.html
Spot Exchange Rates. (2012). Retrieved September 15,
2012 from http://www.foreign-trade.com/currencyoutlook.htm
Yankee Bond. (2011). Retrieved September 13, 2012 from
http://www.investopedia.com/terms/y/yankeebond.asp
#axzz26PIszfXh

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