January 20, 2012
Managing Economic and Transaction Exposure
The Rest Easy hotel chain located in Drenden is the focus of the online simulation. Rest easy is looking to expand into the nation of Zenobia. Zenobia is a bordering nation to Drenden. One significant step in the expansion is that Rest Easy has purchased several assets in Arasia and Xandria which are both very influential cites in Zenobia. The assets are in the amount of for D $ 50million. This amount has to be compensated back in four payments either in Drenden dollars or Zenobain pounds. In the University of Phoenix simulation (2013), Senior supervision does not want to compensate all these payments in the similar currency to limit its disclosure to overseas exchange peril.
In phase one in the simulation; I confirm that if Zenobain pounds will very drastically within the next year. If there is a drastic change then the level of how each currency should be allocated for those currencies. Given the steady upward shift with the rate of trade of Zenobain pound and the Drenden dollar. I predict that the Zenobain pound will be devalued at the rate of 1.75%. This is built on the foundation of the CFO’s endorsement and upward shift in currency. The course of action I took was to pay the four quarterly payments in the distribution of 60% in Drenden dollars and the remaining 40% in Zenobain pounds. This was a choice made based on the efforts to limit Rest Easy’s exposure to foreign peril. Giving the condition of the Zenobain pound Rest Easy could have to face a significant loss. The risk of significant loss findings, are the primary reason I chose to limit Rest easy’ payable sum in the Zenobain pounds.
The second phase of the simulation is a condition offered in Xandria which is a city in Zenobia. The presence of a break out of a new virus strain that has flu like signs will have an influence in Xandria. There also is the exaggeration of the Zenobain financial system that has been going on. These exaggerations have had a negative impact on the Zenobain pound. The currency has experienced deflation that has forced the Zenobain government to supplement interest rates by 1%. The senior organization has recommended that I should avoid the 50% that is owed in Zenobain pounds. This 50% would restrict Rest Easy’s disclosure. I anticipate that there will be deflation in the Zenobain pound to about 2.75%. The optimal choice of 40% forward market and the 60% option market will limit Rest Easy’s disclosure in the market. The current financial climate of Zenobia helps expose the deflation rate. In the period when the Zenobain pound will devalue, there is a beneficial opportunity for the firm to grow more by engaging in an alternative market hedge. This will all be impacted by timely forward agreement investments and the exchange rate that deals with the transactions that will be paid in the trade rate. This method will allow the firm to limit the disclosure to foreign peril along with an opportunity to see gains through the alternative market if that market cheapens.
In the third phase of the simulation the parameters given are that the virus has been controlled and the Zenobain financial system is seeing a bounce back. The government has also made the move to condense the interest rate by 1% these events give encouragement that the Zenobain pound will return to the original deflation rate. The seniors of the firm have advice that limited the foreign currency risk. My suggestion to protect the well being and increase shareholder wealth. In this phase 50% or 100% of the amount that is owed in Zenoboian pounds.
The financial system of Zenobain has gotten back to the original deflation rate. This event is the result of projected short term deflation rate of Zenobain pound will be 2%. There are no distinct indicators that the short term…