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Risk Management and Hedging Strategy

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A few years back the Government of Japan made the offer to the Government of Brazil:
The Brazilian government will give the "Exclusive rights to all the Minerals/ Metals/ and Mining opportunities in Brazil to a consortium of Japanese Corporations for one hundred years to mine, manufacture, extract and sell the commodities. After the one hundred years the Japanese corporations will vacate and the properties will be transferred to the Brazilian government or its designee. In return for this privilege the Japanese Consortium will retire the "entire external debt" of the Brazilian Government (This was estimated to be $250 billion dollars).
Identify from the perspectives of the Japanese and Brazilian Governments what are the advantages and disadvantages of this proposal. Could this Debt for Equity Swap Work?
Why or Why Not? What are the potential problems?
As a global manager, what strategies should you adopt to make this work?

Please help me to answer this questions. What should I take in consideration to answer this question?

Thank you.

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Solution Summary

The expert examines risk management and hedging strategy using Swaps.The response addresses the queries posted in 701 words with references.

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The response addresses the queries posted in 672 words with references.
//The process in which, a person or a business involves in negotiating or agreement with its creditors in order to reduce debt, or the repayment is the debt for equity swap. The following document will include the analysis of the case given and its related advantages and disadvantages along with the issues that may arise while swapping the equity for debts. //

According to the case, Japanese asked for the exclusive rights to all minerals/metals and mining opportunities in Brazil. The duration of the deal was of one hundred years. For the period, of one hundred years Japanese corporation will mine, manufacture, extract and sell commodities and for this in return, Japanese consortium will retire the entire external debts of Brazilian government. The resulting benefits of the above debt deal could create a valuable business in the medium to longer term for the resultant equity holders (Fox & Thompson, 2009).

This deal is advantageous for Japanese corporation, as from the debtor's corporate ...

Solution provided by:
Ashish Sharma, MBA (IP)
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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