Explore BrainMass

Explore BrainMass

    Impact of Hedging on Profitability

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Using any illustrative data, show the effect of hedged versus non-hedged exchange rate changes on a company's profitability. Please provide a step by step discussion and clear illustration.

    © BrainMass Inc. brainmass.com March 4, 2021, 9:33 pm ad1c9bdddf
    https://brainmass.com/economics/exchange-rates/hedged-non-hedged-exchange-rate-changes-profitability-254134

    Solution Preview

    Hedged vs Non-hedged exchange rate changes can have a substantial impact on the company's profitability.
    For example, consider GM. Suppose they have taken a loan of 20 million pounds from a London based bank. GM does have a presence in UK, but UK is not a major market for GM, and therefore it is safe to assume that GM gets most of its revenue from other countries. For the sake of argument say that they get most revenue from the U.S. Assume that the day they took the ...

    Solution Summary

    This example provides how hedging will increase the mean, but reduce the distribution of your profits.

    $2.49

    ADVERTISEMENT