BusBoard’s products target the electronics hobbyist market, primarily in the United States.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Assignment Questions:

 

The assignment questions are based on the following case study: ‘Busboard prototype Systems Ltd: Making Sense of Foreign Exchange’

 

You should read the above case study to answer the questions given below. You will find chapters 5, 6, 7, 11 & 12 of the eBook ‘Multinational Business Finance, 15th edition, 2021 (Eiteman, Stonehill, and Moffett) very useful. You should be able to access the book from the website of the University of Manchester library. You should also use other credible sources (e.g., Financial Times, Wall Street Journal, Journal of Applied Corporate Finance)

 

Individual Assignment Questions

 

1. BusBoard’s products target the electronics hobbyist market, primarily in the United States. What challenges could the company’s choice of target market present to the implementation of a hedging strategy? (10 marks)

 

2. Is it possible for BusBoard’s current strategy for managing currency exchange to be effective? Discuss the company’s size, its actual exposure to USD, and currency fluctuations. (15 marks)

 

3. How could the company hedge exposure using forward contracts? (15 marks)

 

4. How could the company hedge exposure using future contracts? Futures contracts on the USD/CAD exchange rate are available through the Chicago Mercantile Exchange (CME).(20 marks)

 

5. How could BusBoard hedge its exposure using options contracts? Calls and puts on the USD/CAD exchange rate are available through the Montreal Exchange (MS). (20 marks)

 

6. BusBoard is a close affiliate of Kornak Technologies Inc. (KTI), a designer and manufacturer of custom industrial electronics, machine-to machine devices, and microcontroller-based products. KTI customers are located in Canada and the United States, and the company’s head office is in Calgary Alberta, Canada. With sales in both countries, KTI has issues similar to BusBoard with regard to currency translation. What are some potential opportunities and challenges for the two companies if both were to actively hedge movements in the value of the USD/CAD exchange rate? Is it possible for hedging efforts at Busboard to augment KTI’s risk? (20 marks)

 

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