Storm Technologies Ltd - The Case Centre

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Case

Reference no. 9A90B001

Subject category: Finance, Accounting and Control

Authors: Mark Heisz (Ivey Business School, Western University); Rhonda L English (Ivey Business School, Western University)

Published by: Ivey Publishing

Originally published in: 1990

Version: 2002-03-15

Length: 8 pages

Data source: Published sources

Topics: Foreign exchange; Cash flow; Income determination; Hedging

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Abstract

Storm Technologies Ltd has a significant net US cashflow position which exposes the company to foreign exchange risk. As vice-president of finance, Todd Harrison is interested in determining the impact on cashflow and reported net income of a strengthening Canadian dollar. Several alternative hedging strategies are suggested including: (1) forward contracts; (2) call options; (3) put options; and (4) a combination of put and call options. Because the company also has a significant amount of US debt, there is an automatic hedge as the Canadian dollar increases, since the US liability necessarily decreases. There is a Spanish version available ''9A90BS01''.

Location:

Canada

Industry:

Transportation equipment

Size:

Large