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Managing Exchange Rate Risk

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In Jamaica, the current exchange rate against the US Dollar is J$85.00 to US$1.00.

The question is: Do you think an American company doing business in Jamaica should hedge their currency or not? Give reasons for your answer.

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Managing exchange rate risks are examined.

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Whether a company needs to hedge its risk depends on who ultimately bears the risk.

I will give you two example, in the first one, the US company should hedge its currency (though things like futures), in the second example, the company does not need to.

Our first example is a clothing factory, and the factory produces its products in Jamaica. The company pays Jamaican dollar to the workers, and ...

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