Adventure Planet
Referencing Styles: Harvard
Question 1
Adventure Planet Inc.
Adventure Planet Inc. is a U.S.-based company that produces toys and sells them internationally. It has secured a contract in Austria for the delivery of 1,000,000 stuffed panda toys for €10 apiece, for €10,000,000. The contract will be settled in Euros after the toys are delivered.
Adventure Planet’s CFO, Charlie Bucket, is worried about the exchange. The current rate is 1.25 U.S. dollars for one Euro, but it has been relatively volatile lately. If the dollar strengthens to 1.15, the whole delivery would be producing a loss.
In theoretical terms, design at least two hedging strategies to solve this problem, assess how they would create value for Adventure Planet, and explain how they will contribute towards the company’s financial management.
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